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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





Form 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 333-150853-4





Forbes Energy
Services Ltd.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Bermuda                                                        |  | 98-0581100                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                             |  |           
|-------------------------------------------- |  | ----------
|3000 South Business Highway 281 Alice, Texas |  | 78332     
|(Address of principal executive offices)     |  | (Zip Code)

Registrants telephone number, including area code:

(361) 664-0549





Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.     ̈  Yes    x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2).     ̈  Yes    x  No

Shares outstanding of each of the registrants classes of common stock:



|                                              |  |                                    
|--------------------------------------------- |  | -----------------------------------
|Class                                         |  | Outstanding as of November 13,
2009
|Common Stock, $.01 par value(1)               |  | 32,611,200                         
|Class B non-voting shares, $0.01 par value(1) |  | 29,500,000                         







|(1) | See Note 16 of Notes to Condensed Consolidated Financial Statements
|--- | -------------------------------------------------------------------



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FORBES ENERGY SERVICES LTD. AND SUBSIDIARIES (a/k/a the Forbes
Group)

TABLE OF CONTENTS



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|Part I  Financial Information                                                                |  |     
|Item 1. Condensed Consolidated Financial Statements                                           |  | 4   
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 26  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 33  
|Item 4T. Controls and Procedures                                                              |  | 34  
|                                                                                              | 
|Part II  Other Information                                                                   |  |     
|Item 1. Legal Proceedings                                                                     |  | 35  
|Item 1A. Risk Factors                                                                         |  | 35  
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 35  
|Item 3. Defaults Upon Senior Securities                                                       |  | 35  
|Item 4. Submission of Matters to Vote of Security Holders                                     |  | 35  
|Item 5. Other Information                                                                     |  | 36  
|Item 6. Exhibits                                                                              |  | 36  
|Signatures                                                                                    |  | 39  



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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and any oral statements made in connection with it include certain forward-looking statements within the
meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like anticipate, believe, continue, could,
estimate, expect, intend, may, plan, potential, predict, project, should or will or other comparable words or the negative of
these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Quarterly Report on Form 10-Q. Our forward-looking statements are only predictions
based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in
this Quarterly Report on Form 10-Q. These factors include or relate to the following:



| |  |  | supply and demand for oilfield services and industry activity levels;
| | - |  | ---------------------------------------------------------------------



| |  |  | potential for excess capacity;
| | - |  | ------------------------------



| |  |  | spending on the oil and natural gas industry given the recent worldwide economic downturn;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our level of indebtedness in the current depressed market;
| | - |  | ----------------------------------------------------------



| |  |  | impairment of our long-term assets;
| | - |  | -----------------------------------



| |  |  | our ability to maintain stable pricing;
| | - |  | ---------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | substantial capital requirements;
| | - |  | ---------------------------------



| |  |  | significant operating and financial restrictions under our indentures;
| | - |  | ----------------------------------------------------------------------



| |  |  | technological obsolescence of operating equipment;
| | - |  | --------------------------------------------------



| |  |  | dependence on certain key employees;
| | - |  | ------------------------------------



| |  |  | concentration of customers;
| | - |  | ---------------------------



| |  |  | substantial additional costs of compliance with reporting obligations, including the Sarbanes-Oxley Act;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | material weaknesses in internal controls over financial reporting;
| | - |  | ------------------------------------------------------------------



| |  |  | seasonality of oilfield services activity;
| | - |  | ------------------------------------------



| |  |  | dependence on equipment suppliers not party to written contracts;
| | - |  | -----------------------------------------------------------------



| |  |  | collection of accounts receivable;
| | - |  | ----------------------------------



| |  |  | environmental and other governmental regulation;
| | - |  | ------------------------------------------------



| |  |  | risks inherent in our operations;
| | - |  | ---------------------------------



| |  |  | market response to global demands to curtail use of oil and natural gas;
| | - |  | ------------------------------------------------------------------------



| |  |  | change of control;
| | - |  | ------------------



| |  |  | conflicts of interest between the principal equity investors and noteholders;
| | - |  | -----------------------------------------------------------------------------



| |  |  | results of legal proceedings;
| | - |  | -----------------------------



| |  |  | ability to fully integrate future acquisitions;
| | - |  | -----------------------------------------------



| |  |  | variation from projected operating and financial data;
| | - |  | ------------------------------------------------------



| |  |  | variation from budgeted and projected capital expenditures;
| | - |  | -----------------------------------------------------------



| |  |  | volatility of global financial markets;
| | - |  | ---------------------------------------



| |  |  | risks associated with our foreign operations;
| | - |  | ---------------------------------------------



| |  |  | risks associated with contract bidding and the performance of work outside the scope of Mexican contracts; and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | the other factors discussed under Risk Factors.
| | - |  | -------------------------------------------------

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. All forward-looking statements
attributable to us are qualified in their entirety by this cautionary statement. The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider.



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PART I  FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Balance Sheets (unaudited)







|                                                                                                       |  |                   |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------ |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                       |  | September 30,2009 |             |   | December 31,2008 |  
|                                                                                                       |  |                  
|Current assets                                                                                         |  |                   |             |   |                  |   |             |  
|Cash and cash equivalents                                                                              |  | $                 | 23,707,762  |   |                  | $ | 23,469,067  |  
|Accounts receivable  trade, net                                                                       |  |                   | 35,148,063  |   |                  |   | 69,095,522  |  
|Accounts receivable  related parties                                                                  |  |                   | 157,593     |   |                  |   | 97,672      |  
|Accounts receivable  other                                                                            |  |                   | 4,487,858   |   |                  |   | 605,925     |  
|Prepaid expenses                                                                                       |  |                   | 1,526,872   |   |                  |   | 5,266,256   |  
|Other current assets                                                                                   |  |                   | 801,558     |   |                  |   | 1,108,846   |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Total current assets                                                                                   |  |                   | 65,829,706  |   |                  |   | 99,643,288  |  
|Property and equipment, net                                                                            |  |                   | 316,524,140 |   |                  |   | 330,951,116 |  
|Intangible assets, net                                                                                 |  |                   | 37,314,080  |   |                  |   | 39,459,977  |  
|Deferred financing costs, net                                                                          |  |                   | 10,970,768  |   |                  |   | 12,709,207  |  
|Other assets                                                                                           |  |                   | 78,808      |   |                  |   | 37,803      |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Total assets                                                                                           |  | $                 | 430,717,502 |   |                  | $ | 482,801,391 |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|                                                                                                       |  |                  
|Liabilities and Shareholders Equity                                                                   |  |                   |             |   |                  |   |             |  
|Current liabilities                                                                                    |  |                   |             |   |                  |   |             |  
|Accounts payable  trade                                                                               |  | $                 | 17,513,878  |   |                  | $ | 28,653,204  |  
|Accounts payable  related parties                                                                     |  |                   | 480,295     |   |                  |   | 277,154     |  
|Income tax payable                                                                                     |  |                   | 345,671     |   |                  |   | 1,005,872   |  
|Accrued interest payable                                                                               |  |                   | 1,805,959   |   |                  |   | 8,488,560   |  
|Accrued expenses                                                                                       |  |                   | 9,731,016   |   |                  |   | 11,699,652  |  
|Current maturities of long-term debt                                                                   |  |                   | 8,377,193   |   |                  |   | 6,811,802   |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Total current liabilities                                                                              |  |                   | 38,254,012  |   |                  |   | 56,936,244  |  
|Long-term debt, net of current maturities                                                              |  |                   | 206,818,020 |   |                  |   | 205,378,040 |  
|Deferred tax liability                                                                                 |  |                   | 48,544,648  |   |                  |   | 62,068,620  |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Total liabilities                                                                                      |  |                   | 293,616,680 |   |                  |   | 324,382,904 |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Commitments and contingencies see Note 10                                                              |  |                   |             |   |                  |   |             |  
|Shareholders equity                                                                                   |  |                   |             |   |                  |   |             |  
|Preference shares, $.01 par value, 10,000,000 shares authorized                                        |  |                   |            |   |                  |   |            |  
|Common shares, $.01 par value, 450,000,000 shares authorized, 32,611,200 shares issued and outstanding |  |                   | 326,112     |   |                  |   | 326,112     |  
|Class B shares, $.01 par value, 40,000,000 shares authorized, 29,500,000 shares issued and outstanding |  |                   | 295,000     |   |                  |   | 295,000     |  
|Additional paid-in capital                                                                             |  |                   | 168,541,335 |   |                  |   | 166,676,054 |  
|Accumulated deficit                                                                                    |  |                   | (32,061,625 | ) |                  |   | (8,878,679  | )
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Total shareholders equity                                                                             |  |                   | 137,100,822 |   |                  |   | 158,418,487 |  
|                                                                                                       |  |                   |             |   |                  |   |             |  
|Total liabilities and shareholders equity                                                             |  | $                 | 430,717,502 |   |                  | $ | 482,801,391 |  
|                                                                                                       |  |                   |             |   |                  |   |             |  

The accompanying notes are an integral part of these condensed consolidated financial
statements.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Operations (unaudited)







|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|------------------------------------------------------- |  | -------------------------------- | ----------- | - | ------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                        |  | Three Months Ended September 30, |             |   | Nine Months Ended September 30, |  
|                                                        |  | 2009                             |             |   | 2008                            |   |             | 2009 |  |   | 2008        |  
|Revenues                                                |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Well servicing                                          |  | $                                | 23,853,912  |   |                                 | $ | 54,343,084  |      |  | $ | 80,907,991  |   |  | $ | 141,003,486 |  
|Fluid logistics                                         |  |                                  | 26,618,294  |   |                                 |   | 50,802,304  |      |  |   | 82,748,174  |   |  |   | 123,265,951 |  
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Total revenues                                          |  |                                  | 50,472,206  |   |                                 |   | 105,145,388 |      |  |   | 163,656,165 |   |  |   | 264,269,437 |  
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Expenses                                                |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Well servicing                                          |  |                                  | 22,869,209  |   |                                 |   | 35,406,964  |      |  |   | 72,985,810  |   |  |   | 89,819,779  |  
|Fluid logistics                                         |  |                                  | 21,812,340  |   |                                 |   | 36,281,048  |      |  |   | 64,972,027  |   |  |   | 86,739,998  |  
|General and administrative                              |  |                                  | 4,644,809   |   |                                 |   | 4,511,599   |      |  |   | 14,315,264  |   |  |   | 12,371,906  |  
|Depreciation and amortization                           |  |                                  | 9,982,121   |   |                                 |   | 9,075,266   |      |  |   | 29,448,456  |   |  |   | 23,546,370  |  
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Total expenses                                          |  |                                  | 59,308,479  |   |                                 |   | 85,274,877  |      |  |   | 181,721,557 |   |  |   | 212,478,053 |  
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Operating income (loss)                                 |  |                                  | (8,836,273  | ) |                                 |   | 19,870,511  |      |  |   | (18,065,392 | ) |  |   | 51,791,384  |  
|                                                        |  |                                  |             |  
|Other income (expense)                                  |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Interest expense, net                                   |  |                                  | (6,221,304  | ) |                                 |   | (6,532,810  | )    |  |   | (19,281,292 | ) |  |   | (19,091,945 | )
|Gain on extinguishment of debt                          |  |                                  |            |   |                                 |   |            |      |  |   | 1,421,750   |   |  |   |            |  
|Other income                                            |  |                                  | (168,288    | ) |                                 |   | 2,493       |      |  |   | (133,671    | ) |  |   | 109,061     |  
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Income (loss) before taxes                              |  |                                  | (15,225,865 | ) |                                 |   | 13,340,194  |      |  |   | (36,058,605 | ) |  |   | 32,808,500  |  
|                                                        |  |                                  |             |  
|Income tax expense (benefit)                            |  |                                  | (5,616,145  | ) |                                 |   | 5,066,839   |      |  |   | (12,875,659 | ) |  |   | 60,224,259  |  
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Net income (loss)                                       |  | $                                | (9,609,720  | ) |                                 | $ | 8,273,355   |      |  | $ | (23,182,946 | ) |  | $ | (27,415,759 | )
|                                                        |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Earnings (loss) per share of common stock               |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                       |  | $                                | (0.15       | ) |                                 | $ | 0.15        |      |  | $ | (0.37       | ) |  | $ | (0.67       | )
|                                                        |  |                                  |             |  
|Weighted average number of shares outstanding           |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                       |  |                                  | 62,111,200  |   |                                 |   | 54,144,700  |      |  |   | 62,111,200  |   |  |   | 40,653,076  |  
|                                                        |  |                                  |             |  
|Pro forma earnings per share - see Note 12              |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                       |  |                                  |             |   |                                 | $ | 0.16        |      |  |   |             |   |  | $ | 0.38        |  
|                                                        |  |                                  |             |  
|Pro forma weighted average number of shares outstanding |  |                                  |             |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                       |  |                                  |             |   |                                 |   | 54,144,700  |      |  |   |             |   |  |   | 54,144,700  |  

The accompanying notes are an integral part of these condensed consolidated financial
statements.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Changes in Shareholders Equity (unaudited)







|                           |  |               |  |                    |         |         |          |             |          |                    |   |             |   |  |   |             |  
|-------------------------- |  | ------------- |  | ------------------ | ------- | ------- | -------- | ----------- | -------- | ------------------ | - | ----------- | - |  | - | ----------- | -
|                           |  | Capital Stock |  | Additional Paid-in |         |         | Retained |             |          | TotalShareholders |  
|                           |  | Shares        |  | Amount             |         | Capital |          |             | Earnings |                    |   | Equity      |  
|                           |  |               |  |                    |        
|Balance December 31, 2008  |  | 62,111,200    |  | $                  | 621,112 |         | $        | 166,676,054 |          |                    | $ | (8,878,679  | ) |  | $ | 158,418,487 |  
|                           |  |               |  |                    |        
|Stock-based compensation   |  |              |  |                    |        |         |          | 1,869,575   |          |                    |   |            |   |  |   | 1,869,575   |  
|Net loss                   |  |              |  |                    |        |         |          |            |          |                    |   | (23,182,946 | ) |  |   | (23,182,946 | )
|                           |  |               |  |                    |        
|Stock offering costs       |  |              |  |                    |        |         |          | (4,294      | )        |                    |   |            |   |  |   | (4,294      | )
|                           |  |               |  |                    |         |         |          |             |          |                    |   |             |   |  |   |             |  
|                           |  |               |  |                    |        
|Balance September 30, 2009 |  | 62,111,200    |  | $                  | 621,112 |         | $        | 168,541,335 |          |                    | $ | (32,061,625 | ) |  | $ | 137,100,822 |  
|                           |  |               |  |                    |         |         |          |             |          |                    |   |             |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Cash Flows (unaudited)







|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ----------- | - | -------------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ------------ | -
|                                                                                                  |  | For the Three MonthsEnded
September 30, |             |   | For the Nine MonthsEnded
September 30, |  
|                                                                                                  |  | 2009                                    |             |   | 2008                                   |   |             | 2009 |  |   | 2008        |  
|Cash flows from operating income (loss) activities                                                |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Net income (loss)                                                                                 |  | $                                       | (9,609,720  | ) |                                        | $ | 8,273,355   |      |  | $ | (23,182,946 | ) |  | $ | (27,415,759  | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Depreciation and amortization                                                                     |  |                                         | 9,982,121   |   |                                        |   | 9,075,266   |      |  |   | 29,448,456  |   |  |   | 23,546,370   |  
|Amortization of Second Priority Notes                                                             |  |                                         | 169,728     |   |                                        |   | 173,151     |      |  |   | 617,103     |   |  |   | 437,137      |  
|Stock-based compensation                                                                          |  |                                         | 622,420     |   |                                        |   | 620,928     |      |  |   | 1,869,575   |   |  |   | 824,356      |  
|Deferred tax expense (benefit)                                                                    |  |                                         | (4,789,918  | ) |                                        |   | 5,490,183   |      |  |   | (12,182,466 | ) |  |   | 59,575,759   |  
|(Gain)/loss on disposal of assets, net                                                            |  |                                         | (3,295      | ) |                                        |   | 7,604       |      |  |   | (88,281     | ) |  |   | 25,260       |  
|Gain on extinguishment of debt                                                                    |  |                                         |            |   |                                        |   |            |      |  |   | (1,421,750  | ) |  |   |             |  
|Bad debt expense                                                                                  |  |                                         | 164,793     |   |                                        |   |            |      |  |   | 2,497,879   |   |  |   | 20,000       |  
|Deferred loan cost amortization                                                                   |  |                                         | 510,882     |   |                                        |   | 414,265     |      |  |   | 1,425,189   |   |  |   | 2,261,358    |  
|Changes in operating assets and liabilities                                                       |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Accounts receivable                                                                               |  |                                         | 2,804,407   |   |                                        |   | (14,615,057 | )    |  |   | 27,970,941  |   |  |   | (36,529,233  | )
|Accounts receivable - related party                                                               |  |                                         | (17,184     | ) |                                        |   | 83,554      |      |  |   | (59,921     | ) |  |   | 141,159      |  
|Prepaid expenses                                                                                  |  |                                         | (160,482    | ) |                                        |   | (351,495    | )    |  |   | 1,751,790   |   |  |   | (603,056     | )
|Other assets                                                                                      |  |                                         | (110,202    | ) |                                        |   | (616        | )    |  |   | 51,238      |   |  |   | (61,112      | )
|Accounts payable                                                                                  |  |                                         | (1,017,997  | ) |                                        |   | 2,471,543   |      |  |   | (12,060     | ) |  |   | 10,027,336   |  
|Accounts payable - related party                                                                  |  |                                         | 15,660      |   |                                        |   | 269,013     |      |  |   | 203,141     |   |  |   | (2,883,999   | )
|Accrued expenses                                                                                  |  |                                         | 722,514     |   |                                        |   | (836,421    | )    |  |   | (1,968,636  | ) |  |   | 2,976,332    |  
|Income taxes payable                                                                              |  |                                         | 853,605     |   |                                        |   |            |      |  |   | 339,799     |   |  |   |             |  
|Interest payable                                                                                  |  |                                         | (6,487,802  | ) |                                        |   | (2,804,724  | )    |  |   | (6,682,601  | ) |  |   | 5,336,701    |  
|Other                                                                                             |  |                                         |            |   |                                        |   | 49,785      |      |  |   |            |   |  |   | 69,927       |  
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Net cash provided by (used in) operating activities                                               |  |                                         | (6,350,470  | ) |                                        |   | 8,320,334   |      |  |   | 20,576,450  |   |  |   | 37,748,536   |  
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Cash flows from investing activities                                                              |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Purchase of property and equipment                                                                |  |                                         | (6,919,256  | ) |                                        |   | (11,609,706 | )    |  |   | (26,058,864 | ) |  |   | (140,058,520 | )
|Insurance proceeds                                                                                |  |                                         | 84,976      |   |                                        |   |            |      |  |   | 1,745,606   |   |  |   |             |  
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Net cash used in investing activities                                                             |  |                                         | (6,834,280  | ) |                                        |   | (11,609,706 | )    |  |   | (24,313,258 | ) |  |   | (140,058,520 | )
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Cash flows from financing activities                                                              |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Borrowings of the debt                                                                            |  |                                         |            |   |                                        |   | 6,442,376   |      |  |   |            |   |  |   | 206,594,126  |  
|Repayment of debt                                                                                 |  |                                         | (1,570,566  | ) |                                        |   | (1,572,244  | )    |  |   | (4,505,203  | ) |  |   | (104,526,722 | )
|Borrowings under Credit Facility                                                                  |  |                                         |            |   |                                        |   |            |      |  |   | 12,000,000  |   |  |   |             |  
|Retirement of second priority notes                                                               |  |                                         |            |   |                                        |   |            |      |  |   | (3,415,000  | ) |  |   |             |  
|Payments for debt issuance costs                                                                  |  |                                         | (100,000    | ) |                                        |   | (16,628     | )    |  |   | (100,000    | ) |  |   | (14,251,368  | )
|Proceeds from issuance of common stock in stock offering, net                                     |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   | 161,062,296  |  
|Purchase outstanding interests in Forbes Energy Services LLC                                      |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   | (120,000,000 | )
|Stock offering costs                                                                              |  |                                         |            |   |                                        |   |            |      |  |   | (4,294      | ) |  |   |             |  
|Repayments of related party debt                                                                  |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   | (7,048,075   | )
|Members cash distributions                                                                       |  |                                         |            |   |                                        |   | 32,270      |      |  |   |            |   |  |   | (14,702,001  | )
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Net cash provided by (used in) financing activities                                               |  |                                         | (1,670,566  | ) |                                        |   | 4,885,774   |      |  |   | 3,975,503   |   |  |   | 107,128,256  |  
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|                                                                                                  |  |                                         |             |  
|Net increase (decrease) in cash and cash equivalents                                              |  |                                         | (14,855,316 | ) |                                        |   | 1,596,402   |      |  |   | 238,695     |   |  |   | 4,818,272    |  
|Cash and cash equivalents                                                                         |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|Beginning of period                                                                               |  |                                         | 38,563,078  |   |                                        |   | 8,431,215   |      |  |   | 23,469,067  |   |  |   | 5,209,345    |  
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  
|End of period                                                                                     |  | $                                       | 23,707,762  |   |                                        | $ | 10,027,617  |      |  | $ | 23,707,762  |   |  | $ | 10,027,617   |  
|                                                                                                  |  |                                         |             |   |                                        |   |             |      |  |   |             |   |  |   |              |  

The accompanying notes are an integral part of these condensed consolidated financial
statements.



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements





1. Organization and Nature of Operations

Nature of Business

Forbes Energy Services Ltd. (FES Ltd) and its subsidiaries, Forbes Energy Services LLC (FES LLC),
Forbes Energy Capital Inc. (FES CAP), C.C. Forbes, LLC (CCF), TX Energy Services, LLC (TES), Superior Tubing Testers, LLC (STT) and Forbes Energy International, LLC (FEI LLC) are
headquartered in Alice, Texas, and conduct business primarily in the state of Texas. On October 15, 2008, FES LLC and FEI LLC formed Forbes Energy Services México, S. de R.L. de C.V. (FES Mexico), a Mexican limited liability
partnership (sociedad de responsabilidad limitada de capital variable), to conduct operations in Mexico. On December 3, 2008, Forbes Energy Services Mexico Servicios de Personal, S. de R.L de C. V. was formed to provide employee services to FES
Mexico, and on June 8, 2009, FES LTD formed a branch in Mexico. As used in these condensed consolidated financial statements, the Company, the Forbes Group, we, or our means FES Ltd and all
subsidiaries on and after May 29, 2008 (the date of the Bermuda Reorganization (discussed below) and FES LLC and its subsidiaries from January 1, 2008 to May 28, 2008).

The Forbes Group is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas
drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment,
and tubing testing. The Forbes Groups operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with locations in Baxterville, Mississippi, Washington, Pennsylvania and Poza Rica, Mexico.

FES LLC is a Delaware limited liability company formed effective January 1, 2008 to act as the holding company for the three
wholly-owned operating companies, CCF, TES, and STT. In the reorganization (the Delaware Reorganization), ownership of each of such three operating subsidiaries comprising our business was transferred to FES LLC by their equity investors
in exchange for equity interests in FES LLC. Although FES LLC was the legal acquirer in the Delaware Reorganization, CCF was considered the acquirer for accounting purposes. As a result of this determination, the net assets of CCF remain at their
historical cost of $35.6 million and additional paid in capital of $1.5 million was presented separately similar to a change in reporting entity and a reorganization due to the change from a LLC to a corporation for the periods when the entities
were under common control. Purchase accounting was applied to TES and STT. Consideration (in the form of FES LLC equity) was issued to purchase STT and TES in a business combination for approximately $94.5 million which was presented as additional
paid in capital on the Consolidated Statement of Changes in Shareholders Equity. Amounts allocated to identifiable tangible and intangible assets acquired and liabilities assumed were based on valuations. FES LLC allocated $14.5 million as a
step-up in book value to property and equipment of TES, $4.4 million to goodwill, and $42.3 million to other intangible assets. Total value added to the assets and shareholders equity was $61.2 million as a result of the Delaware Reorganization. The
amount of $96 million reported as Acquisition of TES and STT under Total Members Equity represents the $94.5 million associated with TES and STT in addition to the $1.5 million associated with historical contributions into
CCF. This amount is reduced by $0.3 million ($295,000 par value of Class B shares) in arriving at the $95.7 million reported on the Class B stock issued in connection with Bermuda Reorganization line under Additional Paid-In
Capital. Since FES LLC was the legal entity of record until May 29, 2009, the Company reported all equity activity under Members Equity on the Consolidated Statement of Changes in Members/Shareholders Equity
until the Companys conversion to a Bermuda corporation as disclosed below.



|                                                                   |  |                 |              |  
|------------------------------------------------------------------ |  | --------------- | ------------ | -
|                                                                   |  | Members Equity |             
|                                                                   | 
|Delaware Reorganization                                            |  | $               | 35,603,182   |  
|Historical Equity of TES & STT                                     |  |                 | 33,369,896   |  
|Historical Contributions  CCF                                     |  |                 | 1,486,189    |  
|                                                                   |  |                 |              |  
|Opening Balance  January 1, 2008                                  |  |                 | 70,459,267   |  
|Step-Up associated with TES & STT                                  |  |                 | 61,211,654   |  
|Member distributions prior to conversion from LLC to C Corporation |  |                 | (14,734,271  | )
|Conversion from LLC to a C Corporation on May 29, 2008             |  |                 | (116,936,650 | )
|                                                                   |  |                 |              |  
|Ending Balance of members equity  December 31, 2008              |  | $               |             |  
|                                                                   |  |                 |              |  



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







|                                  |  |                           |            |  
|--------------------------------- |  | ------------------------- | ---------- | -
|                                  |  | Additional Paidin
Capital |           
|                                  | 
|Class B stock issued for FES LLC: |  |                           |            |  
|                                  | 
|Historical Equity of TES & STT    |  | $                         | 33,369,896 |  
|Historical Contributions  CCF    |  |                           | 1,486,189  |  
|Step-Up associated with TES       |  |                           | 61,211,654 |  
|Less: Par Value of Class B shares |  |                           | (295,000   | )
|                                  |  |                           |            |  
|                                  |  | $                         | 95,772,739 |  
|                                  |  |                           |            |  

FES Ltd is a Bermuda corporation formed effective April 9, 2008 to act as the
holding company for FES LLC and its subsidiaries. At the time of FES Ltds organization, 200 common shares were issued. On May 29, 2008, concurrent with the Initial Equity Offering, all of the members of FES LLC assigned 63% of their
membership interests in FES LLC to FES Ltd in exchange for 29,500,000 shares of FES Ltds Class B non-voting stock. Upon consummation of the Initial Equity Offering, FES Ltd contributed $120 million cash as additional capital to FES LLC,
and FES LLC used the funds to redeem the remaining outstanding membership interests held by the members of FES LLC, other than FES Ltd. The result was that FES LLC and its subsidiaries became wholly-owned subsidiaries of FES Ltd. The foregoing is
referred to herein as the Bermuda Reorganization. This transaction was accounted for as a transaction between entities under common control and deemed to be effective for accounting purposes as of January 1, 2008.

On May 29, 2008, FES Ltd completed its Canadian initial public offering and simultaneous U.S. private placement of its common
shares (the Initial Equity Offering). In the Initial Equity Offering, FES Ltd sold 24,644,500 common shares for CDN $7.00 per share and the common shares are listed on the Toronto Stock Exchange under the symbol FRB.TO. Gross proceeds
from the Initial Equity Offering were CDN $172,511,500 (USD $173,920,254) and net proceeds from the Initial Equity Offering after expenses were CDN $162,465,730 (USD $163,792,449).

Common stock issued in connection with Initial Equity Offering:



|                                                    |  |   |              |  
|--------------------------------------------------- |  | - | ------------ | -
|Gross Proceeds in US dollars                        |  | $ | 173,920,254  |  
|Less: 6% commission                                 |  |   | (10,127,805  | )
|                                                    |  |   |              |  
|Net proceeds received after commission              |  |   | 163,792,449  |  
|                                                    | 
|Purchase outstanding membership interest in FES LLC |  |   | (120,000,000 | )
|Less: Stock issuance costs                          |  |   | (3,854,654   | )
|Less: Par value of common stock                     |  |   | (246,447     | )
|                                                    |  |   |              |  
|                                                    |  | $ | 39,691,348   |  
|                                                    |  |   |              |  

The net proceeds from this issuance were $39,937,795 which is the sum of the Capital
Stock amount of $246,447 ($.01 par value of the 24,644,700 common shares) and the Additional Paid-In Capital amount of $39,691,348 reported on the Consolidated Statement of Changes in Members/Shareholders Equity.

2. Risk and Uncertainties

As an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, our revenue, profitability, cash flows and future
rate of growth are substantially dependent on our ability to (1) maintain adequate equipment utilization, (2) maintain adequate pricing for the services we provide, and (3) maintain a trained work force. Failure to do so could
adversely affect our financial position, results of operations, and cash flows.

Because our revenues are generated primarily
from customers who are subject to the same factors generally impacting the oil and natural gas industry, our operations are also susceptible to market volatility resulting from economic, cyclical, weather related or other factors related to such
industry. Changes in the level of operating and capital spending in the industry, decreases in oil and natural gas prices, or industry perception about future oil and natural gas prices could materially decrease the demand for our services,
adversely affecting our financial position, results of operations and cash flows.

Notwithstanding the termination of the
Credit Facility as discussed in Note 7, the indentures governing our Second Priority Notes and First Priority Notes, and the debt outstanding thereunder impose significant restrictions on us and increase our vulnerability to adverse economic and
industry conditions that could limit our ability to obtain additional or replacement financing. While the principal indebtedness of the First Priority Notes is not scheduled for repayment until August 2014 and the



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Second Priority Notes not until February 2015, our inability to satisfy certain obligations under these agreements would constitute an event of default. An event of default could result in all or
a portion of our outstanding debt becoming immediately due and payable. If this should occur, we might not be able to obtain waivers or secure alternative financing to satisfy all of our obligations simultaneously. Given current market conditions,
our ability to access the capital markets or to effect any asset sales might be restricted at a time when we would like or need to raise capital. In addition, the current economic conditions could also impact our customers and vendors and may cause
them to fail to meet their obligations to us with little or no warning. These events could have a material adverse effect on our business, financial position, results of operations and cash flows and our ability to satisfy the obligations under our
debt agreements.

3. Basis of Presentation

Interim Financial Information

The unaudited condensed consolidated
financial statements of the Forbes Group are prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with GAAP have been omitted. Therefore, these consolidated financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in Forbes
Groups Annual Report on Form 10-K for the year ended December 31, 2008. In managements opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three and nine
months ended September 30, 2009 may not be indicative of results that will be realized for the full year ending December 31, 2009.

The Forbes Groups condensed consolidated financial statements as of and for the three and nine months ended September 30, 2009 include the accounts of FES Ltd and all its wholly-owned and
consolidated subsidiaries; for the three months ended September 30, 2008, include the accounts of FES LLC and all its wholly-owned and consolidated subsidiaries; and for the period from January 1, 2008 through May 29, 2008, included the
accounts of FES LLC and all its wholly-owned and consolidated subsidiaries, and for the period from May 29, 2008 through September 30, 2008 included the accounts of FES Ltd and its wholly-owned and consolidated subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Income Taxes

The Forbes Group was not subject to federal income tax until May 29, 2008 upon completion of the Initial Equity Offering and related
Bermuda Reorganization. Prior to May 29, 2008, all income, losses, credits and deductions of the Forbes Group were passed through to the members. In conjunction with the initial public offering of FES Ltds common shares and the related
Bermuda Reorganization, the Forbes Group became subject to U.S. federal income tax.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair statement of the condensed consolidated financial statements.

Correction of an Error

During the quarter ended September 30, 2009, the Company discovered and corrected an accounting error related to its billing system that occurred during the last two quarters of 2008 and the quarter ended
March 31, 2009 which resulted in an overstatement of revenues and trade accounts receivable during these periods. The cumulative correction resulted in an increase in pre-tax loss of approximately $1.0 million which was recorded during the quarter
ended September 30, 2009 as a reduction in well servicing revenue.

Additionally, during the quarter ended September 30, 2009,
the Company discovered and corrected an accounting error related to the recording of revenues and expenses in its Mexico operations during the quarters ended March 31, 2009 and June 30, 2009. The error resulted in a misstatement of revenue and
operating expenses. The cumulative correction was recorded during the quarter ended September 30, 2009 and increased revenue by approximately $16,000 and increased operating expenses by approximately $1.0 million resulting in a net impact of
approximately $1.0 million in additional pre-tax loss.

In the aggregate, these two accounting errors, with an effective tax
rate of 35.7%, reduced net income and earnings per share for the three months ended September 30, 2009 by approximately $1.3 million and $0.02, respectively, and for the nine months ended September 30, 2009 by $0.4 million and $0.01, respectively.

The Company evaluated the correction of these errors based on historical operating results for the quarter ended September 30,
2008, the year ended December 31, 2008, the quarters ended March 31, 2009 and June 30, 2009 and the expected operating results for the year ending December 31, 2009 in accordance with Accounting Standards Codification 250-10-45-27 Materiality
Determination for Correction of an Error and Staff Accounting Bulletin No. 99, Materiality. The amount of the adjustments when compared to the operating results for these periods or on any trend of profits or losses, is not
considered by management to be material. In addition, the Company believes that investors would not consider the amount of the adjustments to be material, and therefore, would not have significantly impacted their investment decisions about the
Company.



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Recent Accounting Pronouncements

In June 2009, the FASB issued Accounting Standards Codification Topic 105, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principle,(ASC 105), which became effective for us on July 1, 2009. ASC 105 establishes the FASB Accounting Standards Codification (ASC) as the source of authoritative
accounting principles recognized by the FASB to be applied by non governmental entities in the preparation of financial statements in conformity with GAAP, ASC 105 is not expected to change GAAP and will not have a material impact on our
consolidated financial statements, however, references to GAAP within these financial statements have been updated to the ASC.

The Company adopted FASB Accounting Standards Codification Topic 805, Business Combinations (ASC 805) which significantly changed the accounting for and reporting of business combination transactions. This standard was effective
for the Company for business combination transactions for which the acquisition date was on or after January 1, 2009. No business combination transactions occurred during the nine months ended September 30, 2009.

The Company adopted FASB Accounting Standards Codification Topic 350-30 Determining the Useful Life of Intangible Assets (ASC
350-30) on January 1, 2009. ASC 350-30 amended the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected
cash flows used to measure such assets fair value. The adoption of ASC 350-30 did not have a material impact on the Companys financial statements.

In April 2009, the FASB issued Accounting Standards Codification Topic 825-10-65 Financial Instruments  Overall  Transition and Open Effective Date Information (ASC 822-10-65),
which would amend ASC 825-10 and ASC 270-10 to require disclosure of the fair value of financial instruments in interim financial statements as well as annual financial statements. In addition, entities would be required to disclose the method and
significant assumptions used to estimate the fair value of financial instruments. This guidance became effective for interim and annual periods ending after June 15, 2009.

In May 2009, the FASB issued Accounting Standards Codification Topic 855-10 Subsequent Events (ASC 855-10), which
provides guidance on managements assessment of subsequent events. This standard establishes principles and requirements for disclosure of subsequent events. It establishes the period after the balance sheet date during which events or
transactions are to be evaluated for potential disclosure. It also establishes the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date and requires the Company to disclose the date
through which subsequent events have been reviewed. The adoption of this standard did not have a material impact on our consolidated financial statements.

4. Intangible Assets

The following sets forth the identified intangible
assets by major asset class:



|                        |  |                          |            |                         |   |               |  |                    |            |                         |   |               |  |   |           |  |   |           
|----------------------- |  | ------------------------ | ---------- | ----------------------- | - | ------------- |  | ------------------ | ---------- | ----------------------- | - | ------------- |  | - | --------- |  | - | ----------
|                        |  | As of September 30, 2009 |            | As of December 31, 2008
|                        |  | GrossCarryingValue       |            | AccumulatedAmortization |   | Net BookValue |  | GrossCarryingValue |            | AccumulatedAmortization |   | Net BookValue
|Customer relationships  |  | $                        | 31,895,919 |                         | $ | 3,721,191     |  | $                  | 28,174,728 |                         | $ | 31,895,919    |  | $ | 2,126,395 |  | $ | 29,769,524
|Trade names             |  |                          | 8,049,750  |                         |   | 939,137       |  |                    | 7,110,613  |                         |   | 8,049,750     |  |   | 536,650   |  |   | 7,513,100 
|Safety training program |  |                          | 1,181,924  |                         |   | 137,891       |  |                    | 1,044,033  |                         |   | 1,181,924     |  |   | 78,795    |  |   | 1,103,129 
|Dispatch software       |  |                          | 1,135,282  |                         |   | 198,674       |  |                    | 936,608    |                         |   | 1,135,282     |  |   | 113,528   |  |   | 1,021,754 
|Other                   |  |                          | 58,300     |                         |   | 10,202        |  |                    | 48,098     |                         |   | 58,300        |  |   | 5,830     |  |   | 52,470    
|                        |  |                          |            |                         |   |               |  |                    |            |                         |   |               |  |   |           |  |   |           
|                        |  | $                        | 42,321,175 |                         | $ | 5,007,095     |  | $                  | 37,314,080 |                         | $ | 42,321,175    |  | $ | 2,861,198 |  | $ | 39,459,977
|                        |  |                          |            |                         |   |               |  |                    |            |                         |   |               |  |   |           |  |   |           

The amortization period for customer relationships, trade names, and safety training
is 15 years. The amortization period for dispatch software is 10 years. The Company expenses costs associated with extensions or renewals of intangibles assets. There were no such extensions or renewals in the nine month period ended
September 30, 2009. Amortization expense is calculated using the straight-line method over the period indicated. Aggregate amortization expense of intangible assets for the three and nine months ended September 30, 2009 was approximately
$0.7 million and $2.1 million, respectively, and $0.7 million and $2.1 million for the three and nine months ended September 30, 2008, respectively. Amortization expense associated with identified intangible assets is expected to be
approximately $2.9 million in each of the next five years. The weighted average amortization period remaining for intangible assets is 13 years.



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







5. Stock-Based Compensation

From time to time, the Company grants stock options to its employees, including executive officers, and directors from its 2008 Incentive
Compensation Plan. Standard options vest over a three-year period, with approximately one third vesting on the first, second and third anniversaries of the date of grant. For most grantees, options expire at the earlier of either one year after the
termination of grantees employment by reason of death, disability or retirement, ninety days after termination of the grantees employment other than upon grantees death, disability or retirement, or ten years after the date of
grant.

The following table presents a summary of the Companys stock option activity for the nine months ended
September 30, 2009.



|                                                  |  |           |   |  |                               |      |                                          |            |                         |  
|------------------------------------------------- |  | --------- | - |  | ----------------------------- | ---- | ---------------------------------------- | ---------- | ----------------------- | -
|                                                  |  | Shares    |   |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractualTerm |            | AggregateIntrinsicValue
|Options outstanding at December 31, 2008:         |  | 2,770,000 |   |  | CDN$                          | 7.00 |                                          |           |                         | 
|Stock options:                                    |  |           |   |  |                               |      |                                          |            |                         |  
|Granted                                           |  |          |   |  |                               |     |                                          |           |                         | 
|Exercised                                         |  |          |   |  |                               |     |                                          |           |                         | 
|Forfeited                                         |  | (90,000   | ) |  |                               | 7.00 |                                          |           |                         |  
|                                                  |  |           |   |  |                               |      |                                          |            |                         |  
|Options outstanding at September 30, 2009:        |  | 2,680,000 |   |  | CDN$                          | 7.00 |                                          | 8.67 years |                         | 
|                                                  |  |           |   |  |                               |      |                                          |            |                         |  
|Vested and expected to vest at September 30, 2009 |  | 893,334   |   |  |                               |     |                                          |           |                         | 
|                                                  |  |           |   |  |                               |      |                                          |            |                         |  
|Exercisable at September 30, 2009                 |  | 893,334   |   |  |                               |     |                                          | 8.67       |                         | 
|                                                  |  |           |   |  |                               |      |                                          |            |                         |  

During the three and nine months ended September 30, 2009 and three and nine
months ended September 30, 2008 the Company recorded total stock based compensation expense of $0.6 million, $1.9 million, $0.6 million and $0.8 million, respectively. No stock-based compensation costs were capitalized as of
September 30, 2009. As of September 30, 2009, total unrecognized stock-based compensation costs amounted to $4.1 million (net of estimated forfeitures) and is expected to be recorded over a weighted-average period of 1.7 years.

At September 30, 2009, 2,540,000 shares were available for future grants under the 2008 Incentive Compensation Plan.

6. Property and Equipment

Property and equipment consisted of the following:



|                          |  |                        |  |                    |             |   |                   |   |             |  
|------------------------- |  | ---------------------- |  | ------------------ | ----------- | - | ----------------- | - | ----------- | -
|                          |  | EstimatedLife in Years |  | September 30, 2009 |             |   | December 31, 2008 |  
|Well servicing equipment  |  | 3-15 years             |  | $                  | 287,442,694 |   |                   | $ | 278,168,921 |  
|Autos and trucks          |  | 5-10 years             |  |                    | 79,503,988  |   |                   |   | 78,043,817  |  
|Disposal wells            |  | 5-15 years             |  |                    | 14,985,699  |   |                   |   | 15,028,481  |  
|Building and improvements |  | 5-30 years             |  |                    | 5,968,275   |   |                   |   | 4,598,976   |  
|Furniture and fixtures    |  | 3-10 years             |  |                    | 2,218,356   |   |                   |   | 2,140,493   |  
|Land                      |  |                        |  |                    | 581,242     |   |                   |   | 91,242      |  
|Other                     |  | 3-15 years             |  |                    | 45,813      |   |                   |   | 65,503      |  
|                          |  |                        | 
|                          |  |                        |  |                    |             |   |                   |   |             |  
|                          |  |                        |  |                    | 390,746,067 |   |                   |   | 378,137,433 |  
|Accumulated depreciation  |  |                        |  |                    | (74,221,927 | ) |                   |   | (47,186,317 | )
|                          |  |                        |  |                    |             |   |                   |   |             |  
|                          |  |                        |  | $                  | 316,524,140 |   |                   | $ | 330,951,116 |  
|                          |  |                        |  |                    |             |   |                   |   |             |  

Depreciation expense was $9.2 million and $27.0 million for the three and nine months
ended September 30, 2009 and $8.4 million and $21.4 million for the three and nine months ended September 30, 2008, respectively.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







7. Long-Term Debt

Long-term debt at September 30, 2009 and December 31, 2008, consisted of the following:



|                             |  |                    |             |   |                   |   |             |  
|---------------------------- |  | ------------------ | ----------- | - | ----------------- | - | ----------- | -
|                             |  | September 30, 2009 |             |   | December 31, 2008 |  
|Second Priority Notes        |  | $                  | 196,129,142 |   |                   | $ | 200,762,039 |  
|Revolving Credit Facility(1) |  |                    | 11,956,620  |   |                   |   |            |  
|Other equipment notes        |  |                    | 7,017,490   |   |                   |   | 8,185,907   |  
|Insurance notes              |  |                    | 91,961      |   |                   |   | 3,241,896   |  
|                             |  |                    |             |   |                   |   |             |  
|                             |  |                    | 215,195,213 |   |                   |   | 212,189,842 |  
|Less: Current maturities     |  |                    | (8,377,193  | ) |                   |   | (6,811,802  | )
|                             |  |                    |             |   |                   |   |             |  
|                             |  | $                  | 206,818,020 |   |                   | $ | 205,378,040 |  
|                             |  |                    |             |   |                   |   |             |  



|(1) | Effective October 2, 2009, the Credit Facility was repaid and terminated using the proceeds from the issuance of the First Priority Notes.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

Current maturities of long-term debt as of September 30, 2009, includes $6.6 million in Second Priority
Notes, which are required under the indenture governing the Second Priority Notes to be repurchased by June 30, 2010.

Second Priority Notes

On February 12, 2008, FES LLC and FES CAP issued $205.0 million in
principal amount of 11% senior secured notes (together with notes issued in exchange therefor, the Second Priority Notes). The Forbes Group reflects $196.1 million of debt outstanding in its balance sheet as of September 30,
2009, which recognizes the original issue discount as the Second Priority Notes were issued at 97.635% of par and the repurchase of certain Second Priority Notes as described below. The Second Priority Notes mature on February 15, 2015, and
require semi-annual interest payments at an annual rate of 11% on February 15 and August 15 of each year until maturity. No principal payments are due until maturity. The Second Priority Notes are senior obligations and rank equally in
right of payment with other existing and future senior indebtedness and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.

The Second Priority Notes are guaranteed by FES Ltd, the parent company of FES LLC and FES CAP, as well as the domestic subsidiaries (the
Guarantor Subs) of FES LLC, which includes CCF, TES, STT and FEI LLC. All of the Guarantor Subs are 100% owned and each guarantees the securities on a full and unconditional and joint and several basis. FES Ltd has two 100% owned
indirect subsidiaries, FES Mexico and a related employment company (the Non-Guarantor Subs) that have not guaranteed the Second Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of
the Non-Guarantor Subs to secure the Second Priority Notes. FES Ltd has a branch office in Mexico and conducts operations independent of the Non-Guarantor Subs. The Guarantor Subs represent the majority of the Companys operations.

The indenture governing the Second Priority Notes (the Second Priority Indenture), as amended, required the Forbes Group to
pay $2.0 million in cash during the first quarter of 2009 and requires the Forbes Group to pay an additional $8.0 million in cash by the end of the second quarter of 2010 to repurchase Second Priority Notes upon specified terms and conditions.
Pursuant to this requirement, in the quarter ended March 31, 2009, the Forbes Group paid $2.0 million in cash to repurchase, at a discount, $3,250,000 of Second Priority Notes. Additionally, in the quarter ended June 30, 2009, the Forbes
Group paid $1.4 million cash to repurchase, at a discount, $2.0 million of Second Priority Notes. In connection with these repurchases, the Forbes Group realized a net gain of approximately $1.4 million after writing down a portion of the original
bond discount and writing off a portion of the deferred financing costs.

The Forbes Group may, at its option, redeem all or
part of the Second Priority Notes from time to time at specified redemption prices and subject to certain conditions required by the Second Priority Indenture governing the Second Priority Notes. The Forbes Group is required to make an offer to
purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The Forbes Group is
required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.

The Forbes Group is permitted under the terms of the Second Priority Indenture to incur additional indebtedness in the future, provided that
certain financial conditions set forth in the Second Priority Indenture are satisfied. The Forbes Group is subject to certain covenants contained in the Second Priority Indenture, including provisions that limit or restrict the Forbes Groups
and certain future subsidiaries abilities to incur additional debt, to create, incur or permit to exist certain liens on assets, to make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or
certain other payments to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business, to engage in transactions with affiliates or to make capital expenditures in excess of certain amounts
based on the year in which such expenditures are made.

Details of two of the more significant restrictive covenants in the
Second Priority Indenture are set forth below:



| |  |  | Limitation on the incurrence of additional debt - In addition to certain defined Permitted Debt, the Forbes
| | - |  | -----------------------------------------------------------------------------------------------------------



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







| | Group may only incur additional debt if it is unsecured and if the Fixed Charge Coverage Ratio (as defined) for the most recently completed four full fiscal quarters is at least 2.5 to 1.0 until
December 31, 2009, and 3.0 to 1.0 thereafter. As of September 30, 2009, the Forbes Group could incur no additional debt as Permitted Debt and under the Fixed Charge Coverage Ratio Test.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limitations on capital expenditures - Subject to certain adjustments, permitted Adjusted Capital Expenditures (as defined) that may be made by the
Forbes Group are limited to $35 million for the fiscal year ending December 31, 2009. As of September 30, 2009, the Forbes Group Capital expenditures for 2009 totaled $14.9 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revolving Credit Facility

On April 10, 2008, the Forbes Group entered into a revolving credit facility (the Credit Facility). As discussed below, on October 2, 2009, the Forbes Group repaid and terminated the
Credit Facility, using the proceeds from the issuance of the First Priority Notes. Borrowings under the Credit Facility accrued interest, at the option of the Forbes Group, at either (i) the greater of the Federal Funds Effective Rate in effect
on such day plus 0.5% and the prime rate announced from time to time by Citibank, N.A., plus a margin of up to 1.25%, or (ii) the London Interbank Offered Rate, plus a margin of 1.75% to 2.25%. Unpaid interest accrued on outstanding
loans was payable quarterly. The Credit Facility was secured by first priority security interests in substantially all of the Forbes Groups assets, including those of all of the domestic subsidiaries that rank senior to the security interest
granted to the holders of the Senior Secured Notes. The credit agreement governing the Credit Facility (the Credit Agreement) also contained customary representations, warranties and covenants for the type and nature of the Credit
Facility, including certain limitations or restrictions on the Forbes Groups and certain future subsidiaries ability to incur additional debt, guarantee others obligations, create, incur or permit to exist liens on assets, make
investments or acquisitions, make certain dispositions of assets, make payments on certain subordinated indebtedness, pay dividends or other payments to equity holders, engage in mergers, consolidations or other fundamental changes, sell assets,
change the nature of its business and engage in transactions with affiliates. The Credit Agreement also contained restrictive financial covenants requiring us to maintain a certain Net Worth and certain ratios of Consolidated EBITDA to Consolidated
Interest Expense, Senior Funded Debt to Consolidated Net Worth, and Consolidated Senior Funded Debt to Consolidated EBITDA. The Credit Agreement also contained a provision that would have made the occurrence of any Material Adverse Change an event
of default (the capitalized terms used in this and the previous sentence have the meaning set forth in the Credit Agreement).

First Priority Notes

On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs &
Co. $20 million in aggregate principal amount of First Lien Floating Rate Notes due 2014 (the First Priority Notes), in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. After
offering expenses, the Forbes Group realized net proceeds of approximately $18.8 million which was used to repay and terminate the Credit Facility. The First Priority Notes mature on August 1, 2014, and require semi-annual interest
payments on February 1 and August 1 of each year until maturity at a rate per annum, reset semi-annually, equal to six month LIBOR plus 800 basis points. No principal payments are due until maturity. The First Priority are senior
obligations and rank equally in right of payment with other existing and future senior indebtedness, including the Second Priority Notes, and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the
future.

The First Priority Notes are guaranteed by FES Ltd, as well as the Guarantor Subs. Each of the Guarantor Subs
guarantees the securities on a full and unconditional and joint and several basis. The two Non-Guarantor Subs have not guaranteed the First Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of
the Non-Guarantor Subs to secure the First Priority Notes. The Forbes Group may, at its option, redeem all or part of the First Priority Notes from time to time at specified redemption prices and subject to certain conditions required by the
indenture governing the First Priority Notes (the First Priority Indenture). The Forbes Group is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal
amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted
at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.

The First Priority
Indenture contains certain covenants similar to those in the Second Priority Indenture, including provisions that limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt, guarantee other
obligations, to create, incur or permit to exist certain liens on assets, make investments or acquisitions, make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or certain other payments to
equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business, to engage in transactions with affiliates or to make capital expenditures in excess of certain amounts based on the year in
which such expenditures are made. The First Priority Indenture also provides for certain limitations and restrictions on the Forbes Groups ability to move collateral outside the United States or dispose of assets. These covenants are subject
to a number of important limitations and exceptions.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Each of the First Priority Indenture and Second Priority Indenture provides for events
of default, which, if any of them occur, would, in certain circumstances, permit or require the principal, premium, if any, and interest on all the then outstanding First Priority Notes or Second Priority Notes, respectively, to be due and payable
immediately. Additionally, in certain circumstances an event of default under the First Priority Indenture would cause an event of default under the cross-default provision of the Second Priority Indenture and vice versa.

There are no significant restrictions on FES Ltds ability or the ability of any guarantor to obtain funds from its subsidiaries by such
means as a dividend or loan. See Note 15 for condensed consolidating information required by Rule 3-10 of Regulation S-X.

8. Fair Value
Measurements

Topic 810, Fair Value Measurement and Disclosures, of the ASC is applicable to all financial assets and
liabilities as well as non-financial assets and liabilities. It defines fair value, establishes a framework for measuring fair value when an entity is required to use a fair value measure for recognition or disclosure purposes and prescribes the
disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The ASC requires that fair value measurements be classified and disclosed in one of the following categories:



|         |  |                                                                                                                                                                                                                                                                                                                                                    
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1: |  | Valuation based on quoted market prices for identical assets and liabilities in active markets.                                                                                                                                                                                                                                                    
|         | 
|Level 2: |  | Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
|         | 
|Level 3: |  | Valuation based on unobservable inputs reflecting managements own assumptions, consistent with reasonably available assumptions made by other market participants. These
valuations require significant judgment.                                                                                                                                 

Financial assets and liabilities are to be classified based on the lowest level of
three specific levels input that is significant to the fair value measurement. Assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and
liabilities and their placement within the fair value hierarchy levels.

The Company does not have assets or liabilities that
are measured at fair value on a recurring basis. The Company did not revalue any assets or liabilities at fair value subsequent to initial recognition during the nine months ended September 30, 2009.

The Companys financial instruments that are not recorded at fair value include accounts receivable, accounts payable, accrued
liabilities, and debt. We believe the carrying value of accounts receivable, accounts payable, and accrued liabilities approximates fair value due to the short maturity of these instruments.

The Companys Second Priority Notes were quoted at approximately 80% at September 30, 2009. Accordingly, the fair value of our
Second Priority Notes was approximately $156.9 million at September 30, 2009. The Second Priority Notes traded during October 2009 at 84% of par value. The fair value of the Second Priority Notes are estimated based on primary factors such as
(1) the most recent trade prices of the Second Priority Notes on or near the respective reporting period end and/or (2) the bid and ask prices of the Second Priority Notes at the end of the reporting period. Historically, these factors
have fluctuated significantly, and these factors are expected to fluctuate in future periods.

9. Related Party Transactions

In connection with the Bermuda Reorganization effective May 29, 2008 each of two executive officers/directors and one
additional director contributed approximately 63% of their respective ownership interests in FES LLC to FES Ltd in exchange for 29,500,000 shares of FES Ltd Class B non-voting stock. Each was paid $36 million for his or her then remaining
approximately 37% of the ownership interests in FES LLC originally held by such person from proceeds of FES Ltds Initial Equity Offering.

The Forbes Group enters into transactions with related parties in the normal course of conducting business. Accounts ReceivableRelated Parties and Accounts PayableRelated Parties result from
transactions with related parties which are at terms consistent with those available to third-party customers and from third-party vendors.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Certain members of the Forbes Group are also owners and managers of Alice Environmental
Services, LP (AES). The Forbes Group has entered into the following transactions with AES and its subsidiaries:



| |  |  | AES, through a wholly owned subsidiary, owned and operated an oil field supply store from which the Forbes Group purchased oil field supplies. This
supply store was sold to an independent third party in May 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AES owns various aircraft that the Forbes Group uses on a regular basis.
| | - |  | ------------------------------------------------------------------------



| |  |  | The Forbes Group has also entered into long-term operating leases with AES for well service rigs, vacuum trucks and related equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

The Forbes Group recognized no revenue from AES related to rig, trucking, and equipment and facilities
rental activities; expenses of approximately $2.0 million and $1.1 million, and no capital expenditures for the three months ended September 30, 2009 and 2008, respectively. The Company recognized revenues from AES of approximately $0 and
$11,000, related to rig, trucking, and equipment and facilities rental activities; expenses of approximately $6.3 million and $3.4 million and capital expenditures of approximately $0 and $2.4 million for the nine months ended
September 30, 2009 and 2008, respectively. During December 2008, the Forbes Group leased 10 workover rigs from AES under long-term operating leases. Accounts payable to AES as of September 30, 2009 and December 31, 2008,
resulting from such transactions were approximately $360,000 and $106,000, respectively. Accounts receivable from AES as of September 30, 2009 and December 31, 2008, resulting from such transactions were $0 and $0, respectively.

Dorsal Services, Inc. is a trucking service provider that provides services to the Forbes Group. One of FES Ltds
executive officers, who also serves as a director of FES Ltd, is a partial owner of Dorsal Services, Inc. The Forbes Group recognized revenues of approximately $13,000 and $14,000 related to trucking services, equipment rental, and wash out
activities; expenses of approximately $31,000 and $0.9 million; and capital expenditures of approximately $0 and $1,000 from transactions with Dorsal Services, Inc. for the three months ended September 30, 2009 and 2008, respectively. The
Company recognized revenues of approximately $51,000 and $42,000 related to trucking services, equipment rental, and wash out activities; expenses of approximately $117,000 and $1.2 million; and capital expenditures of approximately $0 and $29,000
from transactions with Dorsal Services, Inc. for the nine months ended September 30, 2009 and 2008, respectively. The Forbes Group had accounts receivable from Dorsal Services, Inc. of approximately $154,000 and 97,000 as of September 30,
2009 and December 31, 2008, respectively, resulting from such transactions. The Forbes Group had accounts payable to Dorsal Services, Inc. of approximately $68,000 and $89,000 as of September 30, 2009 and December 31, 2008, resulting
from such transactions.

Tasco Tool Services, Inc. is a down-hole tool company that is partially owned and managed by a company
that is owned by two officers of FES Ltd. Tasco rents and sells tools to the Forbes Group from time to time. The Forbes Group had revenues from Tasco of approximately $300 and $0 and recognized expenses of approximately $11,000 and $0.3
million and capital expenditures of approximately $57,000 and $0 related to transactions with Tasco for the three months ended September 30, 2009 and 2008, respectively. The Company had revenues from Tasco of approximately $600 and $0 and
recognized expenses of approximately $49,000 and $0.3 million and capital expenditures of approximately $130,000 and $20,000 related to transactions with Tasco for the nine months ended September 30, 2009 and 2008, respectively. Accounts
payable to Tasco as of September 30, 2009 and December 31, 2008 were approximately $12,000 and $40,000, respectively, resulting from these transactions.

The C. W. Hahl Lease, an oil and gas lease, is owned by one of the shareholders of the Forbes Group. The Forbes Group recognized revenues of $0 and $0 for the nine months ended September 30, 2009 and
2008. Accounts receivable as of September 30, 2009 and December 31, 2008 were approximately $1,000. The Forbes Group had no expenses or accounts payable from the C. W. Hahl Lease for either period.

FCJ Management (FCJ) is a corporation that leases land and facilities to the Forbes Group and is owned by two of the executive
officers of FES Ltd, who also serve as directors of FES Ltd, and a manager of one of the subsidiaries of FES Ltd. The Forbes Group recognized expenses of approximately $5,000 and $5,000 for the three months ended September 30, 2009 and 2008,
respectively. The Company recognized expenses of approximately $14,000 and $14,000 for the nine months ended September 30, 2009 and 2008, respectively. No revenues have been recognized from FCJ for any period. The Forbes Group had no accounts
receivable from FCJ or accounts payable to FCJ as of September 30, 2009 or December 31, 2008.

C&F Partners is an
entity that is owned by an officer of FES Ltd. The Forbes Group recognized expenses of approximately $120,000 and $0 for the nine months ended September 30, 3009 and 2008 respectively. The Forbes Group recognized expenses of approximately
$376,000 and $0 for the three months ended September 30, 2009 and 2008, respectively. All expenses are related to aircraft rental. There were no capital expenditures for any period. There were no accounts receivable, and accounts payable were
approximately $41,000 and $42,000 as of September 30, 2009 and December 31, 2008.

Resonant Technology Partners is a
computer networking group that provides services to the Forbes Group. A director of the Forbes Group has an interest in the computer networking company. The Forbes Group recognized expenses of approximately $28,000 and $0 for the three months ended
September 30, 2009 and September 30, 2008 respectively. The Company recognized expenses of approximately $158,000 and $0 for the nine months ended September 30, 2009 and 2008. The Forbes Group had no accounts payable as of
September 30, 2009 and December 31, 2008.

Wolverine Construction, Inc is a construction and site preparation
services company that is owned by a son of one of the officers of FES Ltd. The Forbes Group recognized capital expenditures of approximately $9,000 and $40,000, revenues of



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







approximately $3,000 and $0 and expenses of approximately $124,000 and 62,000 for the three months ended September 30, 2009 and 2008 respectively. The Forbes Group recognized capital
expenditures of approximately $119,000 and $68,000, revenues of approximately $5,000 and $0 and expenses of approximately $765,000 and $140,000 for the nine months ended September 30, 2009 and 2008 respectively. The Forbes Group had accounts
receivable from Wolverine as of September 30, 2009 and December 31, 2008 of approximately $3,000 and $3,000 respectively. The Forbes Group no accounts payable due as of September 30, 2009 and approximately $1,000 due as of
December 31, 2008.

The Forbes Group rents or leases sixteen separate properties from AES for separate parcels of land
and/or buildings. The leases were entered into at various dates subsequent to July 31, 2005. Twelve of the leases have a five-year term with the Forbes Group having the option to extend from between one and five years. Four of the leases are
verbal and month-to-month. Aggregate amounts paid for the sixteen rentals and leases were approximately $0.3 million and $0.9 million for the three and nine months ended September 30, 2009 and approximately $0.3 million and $0.6 million
for the three and nine months ended September 30, 2008, respectively.

The Forbes Group entered into a waste water
disposal operating agreement dated January 1, 2007, with AES pursuant to which AES leases its rights in a certain well bore and receives payments in the form of a minimum fee of $5,000 per month plus $0.15 per barrel for any barrel injected
over 50,000 barrels. Under this agreement, AES also receives a skim oil payment of 20% of the amount realized by the Forbes Group for all oil and hydrocarbons removed from liquids injected into the premises. The agreement term is for
three years and is renewable for successive three year terms as long as AES has rights to the well.

The Forbes Group entered
into a waste water disposal lease agreement dated April 1, 2007, with AES. Under the agreement, the Forbes Group is entitled to use the leased land for the disposal of waste water for a term of five years with three successive three year
renewal periods. The Forbes Group pays a monthly rental of $2,500 per month plus $.05 per barrel for any barrel over 50,000 barrels of waste water injected per month. Additionally, the Forbes Group pays an amount equal to 10% of all oil or other
hydrocarbons removed from liquids injected or any skim oil.

The Forbes Group has a relationship with a bank in which the
President, Chief Executive Officer, and director is also a director of the Forbes Group. As of September 30, 2009 and December 31, 2008, the Forbes Group had approximately $21.6 million and $10.6 million, respectively, on deposit
with this bank.

10. Commitments and Contingencies

Concentrations of Credit Risk

Financial instruments which subject
the Forbes Group to credit risk consist primarily of cash balances maintained in excess of federal depository insurance limits and trade receivables. The Forbes Group restricts investment of temporary cash investments to financial institutions with
high credit standings. The Forbes Groups customer base consists primarily of multi-national and independent oil and natural gas producers. The Forbes Group performs ongoing credit evaluations of its customers but generally does not require
collateral on its trade receivables. With the industry down-turn customer concentration is changing. For the nine months ended September 30, 2009 Forbes Groups largest customer, five largest customers, and ten largest customers
constituted 12.2%, 38.6%, and 49.5% of revenues, respectively. For the nine months ended September 30, 2008 Forbes Groups largest customer, five largest customers and ten largest customers constituted 8.2%, 30.1% and 43.3% respectively.
The loss of any one of our top five customers would have a negative impact on the revenues and profits of the company. Further, our trade accounts receivable are from companies within the oil and natural gas industry and as such Forbes Group is
exposed to normal industry credit risks. Forbes Group continually evaluates its reserves for potential credit losses and establishes reserves for such losses.

Self-Insurance

We are self-insured up to retention limits with
regard to workers compensation and medical coverage of our employees. We have deductibles for workers compensation of $250,000 bodily injury per accident and $250,000 per each claim for
disease. The medical coverage has a $125,000 deductible per individual plus a $250,000 aggregate deductible. Deductibles for automobile liability and general liability are $100,000 per
occurrence. Workers compensation, general liability and automobile liability have an aggregate stop loss in the amount of $6,425,250. The Forbes Group has incurred but not processed claims at September 30, 2009 and December 31,
2008 of approximately $1.9 million and $2.0 million, respectively. These claims are unprocessed and their values are estimated and included in accrued expenses in the accompanying condensed consolidated balance sheets.

Litigation

We are subject to various other claims and legal actions that arise in the ordinary course of business. We do not believe that any of these claims and actions, separately or in the aggregate, will have a material adverse effect on our
business, financial condition, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not occur.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







11. Supplemental Cash Flow Information



|                                                                     |  |                                  |            |                                 |      |   |            |  |   |             |   |  |   |             |  
|-------------------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | ---- | - | ---------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                     |  | Three Months Ended September 30, |            | Nine Months Ended September 30, |     
|                                                                     |  | 2009                             |            |                                 | 2008 |   | 2009       |  |   | 2008        |  
|Cash paid for                                                        |  |                                  |            |                                 |      |   |            |  |   |             |   |  |   |             |  
|Interest                                                             |  | $                                | 169,194    |                                 |      | $ | 11,463,188 |  | $ | 11,812,116  |   |  | $ | 14,769,644  |  
|Taxes                                                                |  |                                  |           |                                 |      |   |           |  |   | 500,000     |   |  |   | 850,000     |  
|Supplemental schedule of non-cash investing and financing activities |  |                                  |            |                                 |      |   |            |  |   |             |   |  |   |             |  
|Seller-financed purchases of property and equipment                  |  | $                                |           |                                 |      |   | 3,181,081  |  | $ |            |   |  | $ | 8,851,415   |  
|Changes in accrued capital expenditures                              |  |                                  | (3,016,735 | )                               |      |   | 29,432,495 |  |   | (11,122,662 | ) |  |   | (10,455,554 | )

12. Income (Loss) per Share

Basic net loss per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period and potentially dilutive common stock equivalents. Potential common stock equivalents that have been issued by
the Forbes Group relate to outstanding stock option and are determined using the treasury stock method. All of our potentially dilutive stock options were excluded from the dilutive EPS calculation as they were antidilutive for all periods
presented.

Concurrent with the Equity Offering on May 29, 2008, we began conducting our business through, a newly formed
corporation and holding company. The pro forma net income per share reflects the effects related to our Bermuda Reorganization from a limited liability company to a C corporation, the issuance of our common stock in connection with our
Initial Equity Offering and an assumed effective tax rate of 37%.

The following table sets forth the computation of basic and
diluted loss per share:



|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|-------------------------------------- |  | --------------------------------------- | ---------- | -------------------------------------- | ---- | - | ---------- |  | - | ----------- | - |  | - | ----------- | -
|                                       |  | For the Three MonthsEnded September 30, |            | For the Nine MonthsEnded September 30, |     
|                                       |  | 2009                                    |            |                                        | 2008 |   | 2009       |  |   | 2008        |  
|Basic:                                 |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Net income (loss)                      |  | $                                       | (9,609,720 | )                                      |      | $ | 8,273,355  |  | $ | (23,182,946 | ) |  | $ | (27,415,759 | )
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Weighted average common shares         |  |                                         | 62,111,200 |                                        |      |   | 54,144,700 |  |   | 62,111,200  |   |  |   | 40,653,076  |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Basic net income (loss) per share      |  | $                                       | (0.15      | )                                      |      | $ | 0.15       |  | $ | (0.37       | ) |  | $ | (0.67       | )
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Diluted:                               |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Net income (loss)                      |  | $                                       | (9,609,720 | )                                      |      | $ | 8,273,355  |  | $ | (23,182,946 | ) |  | $ | (27,415,759 | )
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Weighted average common shares         |  |                                         | 62,111,200 |                                        |      |   | 54,144,700 |  |   | 62,111,200  |   |  |   | 40,653,076  |  
|Stock options                          |  |                                         |           |                                        |      |   |           |  |   |            |   |  |   |            |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Weighted average common sharesdiluted |  |                                         | 62,111,200 |                                        |      |   | 54,144,700 |  |   | 62,111,200  |   |  |   | 40,653,076  |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Diluted net income (loss) per share    |  | $                                       | (0.15      | )                                      |      | $ | 0.15       |  | $ | (0.37       | ) |  | $ | (0.67       | )
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Pro forma income per share             |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Basic:                                 |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Net income                             |  |                                         |            |                                        |      | $ | 8,404,322  |  |   |             |   |  | $ | 20,669,354  |  
|Weighted average common shares         |  |                                         |            |                                        |      |   | 54,144,700 |  |   |             |   |  |   | 54,144,700  |  
|Basic net income per share             |  |                                         |            |                                        |      | $ | 0.16       |  |   |             |   |  | $ | 0.38        |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Diluted:                               |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Net income                             |  |                                         |            |                                        |      | $ | 8,404,322  |  |   |             |   |  | $ | 20,669,354  |  
|Weighted average common shares         |  |                                         |            |                                        |      |   | 54,144,700 |  |   |             |   |  |   | 54,144,700  |  
|Stock options                          |  |                                         |            |                                        |      |   |           |  |   |             |   |  |   |            |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Weighted average common sharesdiluted |  |                                         |            |                                        |      |   | 54,144,700 |  |   |             |   |  |   | 54,144,700  |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  
|Diluted net income per share           |  |                                         |            |                                        |      | $ | 0.16       |  |   |             |   |  | $ | 0.38        |  
|                                       |  |                                         |            |                                        |      |   |            |  |   |             |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







13. Income Taxes

The Forbes Group was not subject to federal income tax until May 29, 2008. Prior to May 29, 2008 all income, losses, credits and deductions of the Forbes Group were passed through to the
members. Accordingly, no provision for U.S. federal income taxes is included in the accompanying condensed combined/consolidated financial statements through May 29, 2008.

The Companys effective tax rate for the nine months ended September 30, 2009 was 35.7% based on a pre-tax loss of $36.1 million.
For the nine months ended September 30, 2008, the effective tax rate was 183.6% based on a pre-tax profit of $32.8 million.

The Forbes Group is subject to the Texas Margins tax. The Texas Margins tax is an income tax equal to one percent of Texas sourced revenue reduced by the greater of (a) cost of goods sold (as defined by Texas law),
(b) compensation (as defined by Texas law) or (c) thirty percent of the Texas-sourced revenue. The Forbes Group accounts for the revised Texas Franchise tax in accordance with the Income Taxes Topic of the ASC because the tax
is derived from a taxable base that consists of income less deductible expenses. For the nine months ended September 30, 2009 and 2008, the Forbes Group recorded franchise tax expense of approximately $490,000 and $700,000, respectively.

14. Business Segment Information

The Forbes Group has two reportable segments organized based on its products and serviceswell servicing and fluid logistics. The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.

Well Servicing

The well servicing segment consists of operations in the U.S. and Mexico, which provides (i) well maintenance, including remedial
repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, and (iv) plugging and
abandoning services. In addition, the Forbes Group has tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing.

Fluid Logistics

The fluid logistics segment consists of operations
in the U.S., which provide, transport, store and dispose of a variety of drilling and produced fluids used in and generated by oil and natural gas production activities. These services are required in most workover and completion projects and are
routinely used in daily producing well operations. The following table sets forth certain financial information with respect to the Companys reportable segments:



|                                      |  |               |            |                |   |              |  |   |            
|------------------------------------- |  | ------------- | ---------- | -------------- | - | ------------ |  | - | -----------
|                                      |  | WellServicing |            | FluidLogistics |   | Consolidated
|Three months ended September 30, 2009 |  |               |            |                |   |              |  |   |            
|Operating revenues                    |  | $             | 23,853,912 |                | $ | 26,618,294   |  | $ | 50,472,206 
|Direct operating costs                |  |               | 22,869,209 |                |   | 21,812,340   |  |   | 44,681,549 
|                                      |  |               |            |                |   |              |  |   |            
|Segment profits                       |  | $             | 984,703    |                | $ | 4,805,954    |  | $ | 5,790,657  
|                                      |  |               |            |                |   |              |  |   |            
|Depreciation and amortization         |  | $             | 5,481,239  |                | $ | 4,500,882    |  | $ | 9,982,121  
|Capital expenditures                  |  |               | 3,732,422  |                |   | 174,370      |  |   | 3,906,792  
|                                      |  |               |           
|Three months ended September 30, 2008 |  |               |            |                |   |              |  |   |            
|Operating revenues                    |  | $             | 54,343,084 |                | $ | 50,802,304   |  | $ | 105,145,388
|Direct operating costs                |  |               | 35,406,964 |                |   | 36,281,048   |  |   | 71,688,012 
|                                      |  |               |            |                |   |              |  |   |            
|Segment profits                       |  | $             | 18,936,120 |                | $ | 14,521,256   |  | $ | 33,457,376 
|                                      |  |               |            |                |   |              |  |   |            
|Depreciation and amortization         |  | $             | 5,092,353  |                | $ | 3,982,913    |  | $ | 9,075,266  
|Capital expenditures                  |  |               | 28,235,770 |                |   | 15,986,580   |  |   | 44,222,350 
|                                      |  |               |           
|Nine months ended September 30, 2009  |  |               |            |                |   |              |  |   |            
|Operating revenues                    |  | $             | 80,907,991 |                | $ | 82,748,174   |  | $ | 163,656,165
|Direct operating costs                |  |               | 72,985,810 |                |   | 64,972,027   |  |   | 137,957,837
|                                      |  |               |            |                |   |              |  |   |            



19



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







|                                     |  |               |             |                |   |              |  |   |            
|------------------------------------ |  | ------------- | ----------- | -------------- | - | ------------ |  | - | -----------
|                                     |  | WellServicing |             | FluidLogistics |   | Consolidated
|Segment profits                      |  | $             | 7,922,181   |                | $ | 17,776,147   |  | $ | 25,698,328 
|                                     |  |               |             |                |   |              |  |   |            
|Depreciation and amortization        |  | $             | 16,047,021  |                | $ | 13,401,435   |  | $ | 29,448,456 
|Capital expenditures                 |  |               | 13,189,867  |                |   | 1,751,101    |  |   | 14,940,968 
|Assets                               |  |               | 294,015,849 |                |   | 192,856,589  |  |   | 486,872,438
|                                     |  |               |            
|Nine months ended September 30, 2008 |  |               |             |                |   |              |  |   |            
|Operating revenues                   |  | $             | 141,003,486 |                | $ | 123,265,951  |  | $ | 264,269,437
|Direct operating costs               |  |               | 89,819,779  |                |   | 86,739,998   |  |   | 176,559,777
|                                     |  |               |             |                |   |              |  |   |            
|Segment profits                      |  | $             | 51,183,707  |                | $ | 36,525,953   |  | $ | 87,709,660 
|                                     |  |               |             |                |   |              |  |   |            
|Depreciation and amortization        |  | $             | 13,121,367  |                | $ | 10,425,003   |  | $ | 23,546,370 
|Capital expenditures                 |  |               | 101,150,282 |                |   | 37,320,549   |  |   | 138,470,831
|Assets                               |  |               | 287,049,258 |                |   | 188,139,772  |  |   | 475,189,030



|                                                                 |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|---------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                 |  | Three Months Ended September 30, |             |   | Nine Months Ended September 30, |  
|                                                                 |  | 2009                             |             |   | 2008                            |   |            | 2009 |  |   | 2008        |  
|Reconciliation of the Forbes Group Operating Income as Reported: |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|                                                                 |  |                                  |             |  
|Segment profits                                                  |  | $                                | 5,790,657   |   |                                 | $ | 33,457,376 |      |  | $ | 25,698,328  |   |  | $ | 87,709,660  |  
|General and administrative exp                                   |  |                                  | 4,644,809   |   |                                 |   | 4,511,599  |      |  |   | 14,315,264  |   |  |   | 12,371,906  |  
|Depreciation and amortization                                    |  |                                  | 9,982,121   |   |                                 |   | 9,075,266  |      |  |   | 29,448,456  |   |  |   | 23,546,370  |  
|                                                                 |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|Operating income (loss)                                          |  |                                  | (8,836,273  | ) |                                 |   | 19,870,511 |      |  |   | (18,065,392 | ) |  |   | 51,791,384  |  
|Other expenses, net                                              |  |                                  | (6,389,592  | ) |                                 |   | (6,530,317 | )    |  |   | (17,993,213 | ) |  |   | (18,982,884 | )
|                                                                 |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|Income (loss) before income taxes                                |  | $                                | (15,225,865 | ) |                                 | $ | 13,340,194 |      |  | $ | (35,058,605 | ) |  | $ | 32,808,500  |  
|                                                                 |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  



|                                                       |  |                         |              |   |                        |   |              |  
|------------------------------------------------------ |  | ----------------------- | ------------ | - | ---------------------- | - | ------------ | -
|                                                       |  | As ofSeptember 30, 2009 |              |   | As ofDecember 31, 2008 |  
|Reconciliation of the Forbes Group Assets as Reported: |  |                         |              |   |                        |   |              |  
|                                                       |  |                        
|Total reportable segments                              |  | $                       | 486,872,438  |   |                        | $ | 469,286,145  |  
|Eliminate internal transactions                        |  |                         | (527,752,188 | ) |                        |   | (405,882,394 | )
|Parent                                                 |  |                         | 471,597,252  |   |                        |   | 419,397,640  |  
|                                                       |  |                         |              |   |                        |   |              |  
|Total assets                                           |  | $                       | 430,717,502  |   |                        | $ | 482,801,391  |  
|                                                       |  |                         |              |   |                        |   |              |  

Financial information about geographic areas

Revenue from the Companys non-U.S. operations were $8.7 million and $18.4 million for the three and nine months ended
September 30, 2009, respectively, and $0 and $0 for the three and nine months ended September 30, 2008, respectively. All other revenue was generated by the Companys U.S. operations. Long-lived assets located in Mexico were
approximately $18 million and $0.3 million as of September 30, 2009 and December 31, 2008, respectively. All other long-lived assets were located in the U.S.

15. Guarantor and Non-Guarantor Condensed Consolidating Financial Statements

As discussed in Note 7, the Company has certain significant non-guarantor subsidiaries and is required to present the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are
presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Companys share in the subsidiaries cumulative results of operations,
capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.

Supplemental financial information for Forbes Energy Services Ltd., the parent, Forbes Energy Services LLC and Forbes Energy Capital, Inc.,
the issuers, our combined subsidiary guarantors and our non-guarantor subsidiaries is presented below. The December 31, 2008 supplemental information has not been included because the then existing non-guarantor was deemed to be minor as of and
for the period ending that date.



20



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Condensed Consolidating Balance Sheet

As of September 30, 2009



|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|------------------------------------------ |  | ------ | ----------- | - | ------- | - | ----------- |  | -------------- | ----------- |  | ------------ | ---------- | - | ------------ | - | ------------ | - |  | - | -----------
|                                           |  | Parent |             |   | Issuers |   | Guarantors  |  | Non-Guarantors |             |  | Eliminations |            |   | Consolidated
|Assets                                     |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Current assets                             |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Cash and cash equivalents                  |  | $      | 16,729      |   |         | $ | 11,625,671  |  | $              | 12,160,701  |  | $            | (95,339    | ) |              | $ |             |   |  | $ | 23,707,762 
|Accounts receivable                        |  |        | 14,175,704  |   |         |   | 9,078       |  |                | 35,692,693  |  |              | 13,721,444 |   |              |   | (23,805,405  | ) |  |   | 39,793,514 
|                                           |  |        |             |   |         |  
|Other current assets                       |  |        | 3,272       |   |         |   | 410,345     |  |                | 1,292,384   |  |              | 622,429    |   |              |   |             |   |  |   | 2,328,430  
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|                                           |  |        |             |   |         |  
|Total current assets                       |  |        | 14,195,705  |   |         |   | 12,045,094  |  |                | 49,145,778  |  |              | 14,248,534 |   |              |   | (23,805,405  | ) |  |   | 65,829,706 
|Property and equipment, net                |  |        | 504,902     |   |         |   |            |  |                | 314,899,846 |  |              | 1,119,392  |   |              |   |             |   |  |   | 316,524,140
|Investments in affiliates                  |  |        | 47,013,300  |   |         |   | 94,910,070  |  |                | 1,356,705   |  |              |           |   |              |   | (143,280,075 | ) |  |   |           
|Intercompany receivables                   |  |        | 94,481,114  |   |         |   | 343,102,323 |  |                | 61,151,417  |  |              | 198,525    |   |              |   | (498,933,379 | ) |  |   |           
|Intercompany note receivable               |  |        | 5,013,405   |   |         |   |            |  |                |            |  |              |           |   |              |   | (5,013,405   | ) |  |   |           
|Intangible assets, net                     |  |        |            |   |         |   |            |  |                | 37,314,080  |  |              |           |   |              |   |             |   |  |   | 37,314,080 
|Deferred financing costs, net              |  |        |            |   |         |   | 10,970,768  |  |                |            |  |              |           |   |              |   |             |   |  |   | 10,970,768 
|Other assets                               |  |        | 1,890       |   |         |   | 35,000      |  |                | 30,774      |  |              | 11,144     |   |              |   |             |   |  |   | 78,808     
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Total assets                               |  | $      | 162,210,316 |   |         | $ | 461,063,255 |  | $              | 463,898,600 |  | $            | 15,577,595 |   |              | $ | (671,032,264 | ) |  | $ | 430,717,502
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|                                           |  |        |             |   |         |  
|Liabilities and Shareholders Equity       |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Current liabilities                        |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Accounts payable                           |  | $      | 17,778,955  |   |         | $ | 350,010     |  | $              | 17,977,816  |  | $            | 4,182,468  |   |              | $ | (22,295,076  | ) |  | $ | 174,994,173
|Accrued liabilities                        |  |        | (949,574    | ) |         |   | 1,857,548   |  |                | 9,618,067   |  |              | 2,874,013  |   |              |   | (1,517,408   | ) |  |   | 11,882,646 
|Current maturities of long-term debt       |  |        |            |   |         |   | 6,750,000   |  |                | 1,627,193   |  |              |           |   |              |   |             |   |  |   | 8,377,193  
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|                                           |  |        |             |   |         |  
|Total current liabilities                  |  |        | 16,829,381  |   |         |   | 8,957,558   |  |                | 29,223,076  |  |              | 7,056,481  |   |              |   | (23,812,484  | ) |  |   | 38,254,012 
|Long-term debt, net of current maturities  |  |        |            |   |         |   | 189,471,103 |  |                | 17,346,917  |  |              |           |   |              |   |             |   |  |   | 206,818,020
|Intercompany payables                      |  |        | 30,570,941  |   |         |   | 215,620,294 |  |                | 250,494,946 |  |              | 2,240,119  |   |              |   | (498,926,300 | ) |  |   |           
|Intercompany note payable                  |  |        |            |   |         |   |            |  |                |            |  |              | 5,013,405  |   |              |   | (5,013,405   | ) |  |   |           
|Deferred tax liability (benefit)           |  |        | (23,290,828 | ) |         |   |            |  |                | 71,924,726  |  |              | (189,250   | ) |              |   |             |   |  |   | 48,544,648 
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|                                           |  |        |             |   |         |  
|Total liabilities                          |  |        | 24,109,494  |   |         |   | 414,048,955 |  |                | 368,989,665 |  |              | 14,220,755 |   |              |   | (527,752,189 | ) |  |   | 293,616,680
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Shareholders equity                       |  |        | 137,100,822 |   |         |   | 47,014,300  |  |                | 94,908,935  |  |              | 1,356,840  |   |              |   | (143,280,075 | ) |  |   | 137,100,822
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            
|Total liabilities and shareholders equity |  | $      | 161,210,316 |   |         | $ | 461,063,255 |  | $              | 463,898,600 |  | $            | 15,577,595 |   |              | $ | (671,032,264 | ) |  | $ | 430,717,502
|                                           |  |        |             |   |         |   |             |  |                |             |  |              |            |   |              |   |              |   |  |   |            



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2009



|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ---------- | - |  | - | ----------- | -
|                                      |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Revenues                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  | $      | 7,625,415   |   |         | $ |            |            |  | $ | 16,742,325     |   |  | $            | 796,646    |   |              | $ | (1,310,474 | ) |  | $ | 23,853,912  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 26,618,294     |   |  |              |           |   |              |   |           |   |  |   | 26,618,294  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Total revenues                        |  |        | 7,625,415   |   |         |   |            |            |  |   | 43,360,619     |   |  |              | 796,646    |   |              |   | (1,310,474 | ) |  |   | 50,472,206  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|Expenses                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  |        | 8,655,943   |   |         |   |            |            |  |   | 16,816,970     |   |  |              | (2,197,319 | ) |              |   | (406,385   | ) |  |   | 22,869,209  |  
|                                      |  |        |             |   |         |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 21,812,340     |   |  |              |           |   |              |   |           |   |  |   | 21,812,340  |  
|                                      |  |        |             |   |         |  
|General and administrative            |  |        | 1,777,993   |   |         |   | 1,358,927   |            |  |   | 2,228,444      |   |  |              | 274,046    |   |              |   | (994,601   | ) |  |   | 4,644,809   |  
|Depreciation and amortization         |  |        | (72,991     | ) |         |   |            |            |  |   | 9,923,604      |   |  |              | 49,746     |   |              |   | 81,762     |   |  |   | 9,982,121   |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Total expenses                        |  |        | 10,360,945  |   |         |   | 1,358,927   |            |  |   | 50,781,358     |   |  |              | (1,873,527 | ) |              |   | (1,319,224 | ) |  |   | 59,308,479  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Operating income (loss)               |  |        | (2,735,530  | ) |         |   | (1,358,927  | )          |  |   | (7,420,739     | ) |  |              | 2,670,173  |   |              |   | 8,750      |   |  |   | (8,836,273  | )
|                                      |  |        |             |   |         |  
|Interest income (expense), net        |  |        | 40,574      |   |         |   | (5,437,535  | )          |  |   | (794,450       | ) |  |              | (10,126    | ) |              |   | (19,767    | ) |  |   | (6,221,304  | )
|Equity in income (loss) of affiliates |  |        | (12,188,705 | ) |         |   | (5,513,067  | )          |  |   | 2,349,168      |   |  |              |           |   |              |   | 15,352,604 |   |  |   |            |  
|                                      |  |        |             |   |         |  
|Other income (loss), net              |  |        | (97,478     | ) |         |   | 120,824     |            |  |   | 18,604         |   |  |              | (221,255   | ) |              |   | 11,017     |   |  |   | (168,288    | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Income (expense) before taxes         |  |        | (14,981,139 | ) |         |   | (12,188,705 | )          |  |   | (5,847,417     | ) |  |              | 2,438,792  |   |              |   | 15,352,604 |   |  |   | (15,225,865 | )
|                                      |  |        |             |   |         |  
|Income tax expense (benefit)          |  |        | (5,371,419  | ) |         |   |            |            |  |   | (334,115       | ) |  |              | 89,389     |   |              |   |           |   |  |   | (5,616,145  | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|Net income (loss)                     |  | $      | (9,609,720  | ) |         | $ | (12,188,705 | )          |  | $ | (5,513,302     | ) |  | $            | 2,349,403  |   |              | $ | 15,352,604 |   |  | $ | (9,609,720  | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2009



|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | --------- | - | ------------ | - | ----------- | - |  | - | ----------- | -
|                                      |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |           |   | Consolidated |  
|Revenues                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  | $      | 18,409,876  |   |         | $ |            |            |  | $ | 66,441,052     |   |  | $            | 9,415,713 |   |              | $ | (13,358,650 | ) |  | $ | 80,907,991  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 82,748,174     |   |  |              |          |   |              |   |            |   |  |   | 82,748,174  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Total revenues                        |  |        | 18,409,876  |   |         |   |            |            |  |   | 149,189,226    |   |  |              | 9,415,713 |   |              |   | (13,358,650 | ) |  |   | 163,656,165 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Expenses                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Well servicing                        |  |        | 18,826,178  |   |         |   |            |            |  |   | 59,923,413     |   |  |              | 4,986,248 |   |              |   | (10,750,029 | ) |  |   | 72,985,810  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 64,972,027     |   |  |              |          |   |              |   |            |   |  |   | 64,972,027  |  
|General and administrative            |  |        | 3,676,595   |   |         |   | 4,823,914   |            |  |   | 7,159,644      |   |  |              | 1,245,775 |   |              |   | (2,590,664  | ) |  |   | 14,315,264  |  
|Depreciation and amortization         |  |        | 8,771       |   |         |   |            |            |  |   | 29,307,907     |   |  |              | 131,778   |   |              |   |            |   |  |   | 29,448,456  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Total expenses                        |  |        | 22,511,544  |   |         |   | 4,823,914   |            |  |   | 161,362,991    |   |  |              | 6,363,801 |   |              |   | (13,340,693 | ) |  |   | 181,721,557 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Operating income (loss)               |  |        | (4,101,668  | ) |         |   | (4,823,914  | )          |  |   | (12,173,765    | ) |  |              | 3,051,912 |   |              |   | (17,957     | ) |  |   | (18,065,392 | )
|                                      |  |        |             |   |         |  
|Interest income (expense), net        |  |        | 30,679      |   |         |   | (18,010,249 | )          |  |   | (1,281,724     | ) |  |              | (20,021   | ) |              |   | 23          |   |  |   | (19,281,292 | )
|                                      |  |        |             |   |         |  
|Equity in income (loss) of affiliates |  |        | (31,772,951 | ) |         |   | (10,481,815 | )          |  |   | 2,593,782      |   |  |              |          |   |              |   | 39,660,984  |   |  |   |            |  
|Other income (loss), net              |  |        | (102,974    | ) |         |   | 1,543,027   |            |  |   | 97,850         |   |  |              | (267,758  | ) |              |   | 17,934      |   |  |   | 1,288,079   |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Income (expense) before taxes         |  |        | (35,946,914 | ) |         |   | (31,772,951 | )          |  |   | (10,763,857    | ) |  |              | 2,764,133 |   |              |   | 39,660,984  |   |  |   | (36,058,605 | )
|Income tax expense (benefit)          |  |        | (12,763,968 | ) |         |   |            |            |  |   | (281,783       | ) |  |              | 170,092   |   |              |   |            |   |  |   | (12,875,659 | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Net income (loss)                     |  | $      | (23,182,946 | ) |         | $ | (31,772,951 | )          |  | $ | (10,482,074    | ) |  | $            | 2,594,041 |   |              | $ | 39,660,984  |   |  | $ | (23,182,946 | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2009



|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|---------------------------------------------------- |  | ------ | -------- | - | ------- | - | ---------- | ---------- |  | - | -------------- | - |  | ------------ | -------- | ------------ |  | - | - |  | - | ----------- | -
|                                                     |  | Parent |          |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |          | Consolidated | 
|Cash flows from operating activities                 |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net cash provided by operating activities            |  | $      | (115,868 | ) |         | $ | 15,985,037 |            |  | $ | 3,918,915      |   |  | $            | 788,366  |              |  | $ |  |  | $ | 20,576,450  |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|                                                     |  |        |          |   |         |  
|Cash flows from investing activities                 |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Insurance proceeds                                   |  |        |         |   |         |   |           |            |  |   | 1,745,606      |   |  |              |         |              |  |   |  |  |   | 1,745,606   |  
|Purchase of property and equipment                   |  |        |         |   |         |   |           |            |  |   | (25,155,378    | ) |  |              | (903,486 | )            |  |   |  |  |   | (26,058,864 | )
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net cash used in investing activities                |  |        |         |   |         |   |           |            |  |   | (23,409,772    | ) |  |              | (903,486 | )            |  |   |  |  |   | (24,313,258 | )
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|                                                     |  |        |          |   |         |  
|Cash flows from financing activities                 |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Payment for debt issuance costs                      |  |        |         |   |         |   |           |            |  |   | (100,000       | ) |  |              |         |              |  |   |  |  |   | (100,000    | )
|Stock offering costs                                 |  |        | (4,294   | ) |         |   |           |            |  |   |               |   |  |              |         |              |  |   |  |  |   | (4,294      | )
|Net borrowings under the Credit Facility             |  |        |         |   |         |   |           |            |  |   | 12,000,000     |   |  |              |         |              |  |   |  |  |   | 12,000,000  |  
|                                                     |  |        |          |   |         |  
|Repayments of debt                                   |  |        |         |   |         |   | (4,556,104 | )          |  |   | (3,364,099     | ) |  |              |         |              |  |   |  |  |   | (7,920,203  | )
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net cash provided by (used in) financing activities  |  |        | (4,294   | ) |         |   | (4,556,104 | )          |  |   | 8,535,901      |   |  |              |         |              |  |   |  |  |   | 3,975,503   |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net increase/(decrease) in cash and cash equivalents |  |        | (120,162 | ) |         |   | 11,428,933 |            |  |   | (10,954,956    | ) |  |              | (115,120 | )            |  |   |  |  |   | 238,695     |  
|Cash and cash equivalents                            |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Beginning of period                                  |  |        | 136,891  |   |         |   | 196,738    |            |  |   | 23,115,657     |   |  |              | 19,781   |              |  |   |  |  |   | 23,469,067  |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|End of period                                        |  | $      | 16,729   |   |         | $ | 11,625,671 |            |  | $ | 12,160,701     |   |  | $            | (95,339  | )            |  | $ |  |  | $ | 23,707,762  |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  

16. Equity Securities

Common Shares

Holders of common shares have no pre-emptive, redemption, conversion, or sinking fund rights. Holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares. Unless a
different majority is required by law or by the Companys bye-laws, resolutions to be approved by holders of common shares require approval by a simple majority of votes cast at a meeting at which a quorum is present. In the event of the
liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to share equally and ratably in the Companys assets, if any, remaining after the payment of all of its debts and liabilities, subject to any
liquidation preference on any issued and outstanding preference shares.

Class B Shares

Holders of Class B Shares have all of the rights of holders of common shares, except for the differences described in this section. The Class
B Shares are convertible at any time at the discretion of each holder into common shares. Holders of Class B Shares have the right to be present at annual shareholder meetings, but, except as otherwise provided in the Companies Act 1981 of
Bermuda (CAB) and the Companys bye-laws, have no right to vote on any matters at such meetings. Under the bye-laws, the holders of the Class B Shares are permitted to vote with the common shares on an as-converted basis for the
following actions:



| |  |  | any increase or decrease in the authorized number of common shares or Preference Shares;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | any agreement by the Company or its shareholders regarding a business combination (as defined in the By-laws);
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | any increase of decrease in the authorized number of members of the Board of Directors;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the liquidation, dissolution or winding up of the Company; and
| | - |  | --------------------------------------------------------------



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Consolidated Financial Statements(Continued)







| |  |  | voluntary placement of the Company into receivership proceedings in any relevant jurisdiction.
| | - |  | ----------------------------------------------------------------------------------------------

In addition, the following actions require the approval of holders of 75% of the Class B Shares:



| |  |  | any increase or decrease in the authorized number and any issuance of Class B Shares;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | any alteration or waiver of any provision of the bye-laws in a manner adverse to the holders of the Class B Shares; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | any authorization or any designation, whether by reclassification or otherwise, of any new class or series of shares or any other securities
convertible into equity securities of the Company having voting rights or ranking on a parity with or senior to the Class B Shares in right of redemption, liquidation preference, or dividend rights, or any increase in the authorized or designated
number of any such new class or series.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the rights above, holders of Class B Shares have the
right to nominate a majority of the board of directors for election for as long as such holders own at least a majority of the capital stock of the Company. In the event that such holders own between 25% and 50% of the capital stock of the Company,
they shall have the right to nominate that number of directors commensurate with their percentage ownership of the Company, with such number being not less than two.

17. Subsequent Events

As discussed in Note 7, on October 2, 2009, the
Forbes Group issued the First Priority Notes and used the proceeds therefrom to repay and terminate the Credit Facility. Other subsequent events have been evaluated through the issuance of this filing, November 13, 2009.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements for the year ended December 31, 2008 included in our
Annual Report on Form 10-K. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements
involve risks and uncertainties in that the actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in Part
II-Item 1A. Risk Factors included herein.

Overview

Forbes Energy Services Ltd., or FES Ltd, and its domestic subsidiaries, Forbes Energy Services LLC, or FES LLC,, Forbes Energy Capital Inc.,
or FES CAP, C.C. Forbes, LLC, or CCF, TX Energy Services, LLC, or TES, Superior Tubing Testers, LLC, or STT, and Forbes Energy International, LLC, or FEI LLC, are headquartered in Alice, Texas and conduct business primarily in the state of
Texas. On October 15, 2008, FES LLC and FEI LLC formed Forbes Energy Services México, S. de R.L. de C.V., or FES Mexico, a Mexican limited liability partnership (sociedad de responsabilidad limitada de capital variable), to conduct
operations in Mexico. On December 3, 2008, Forbes Energy Services Mexico Servicios de Personal, S. de R.L de C. V. was formed to provide employee services to FES Mexico, and on June 8, 2009, FES LTD formed a branch in Mexico.

As used in this Quarterly Report on Form 10-Q, the Company, the Forbes Group, we, and
our mean FES Ltd and its subsidiaries on and after May 29, 2008; FES LLC and its subsidiaries from January 1, 2008 to May 28, 2008.

We are an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of
oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and
natural gas producing regions of Texas, with one location in Baxterville, Mississippi, one location in Washington, Pennsylvania, and one location in Poza Rica, Mexico. We currently conduct our operations through the following two business segments:



| |  |  | Well Servicing. Our well servicing segment comprised 47% and 49% of consolidated revenues for the three and nine months ended September 30,
2009, respectively. At September 30, 2009, our well servicing segment utilized our modern fleet of 170 owned or leased well servicing rigs, which included 162 workover rigs and 8 swabbing rigs, and related assets and equipment.
These assets are used to provide (i) well maintenance, including remedial repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and
re-perforations, (iii) completion and swabbing activities, and (iv) plugging and abandoning services. In addition, we have a fleet of 6 tubing testing units that are used to conduct pressure testing of oil and natural gas production
tubing.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fluid Logistics. Our fluid logistics segment comprised 53% and 51% of consolidated revenues for the three and nine months ended
September 30, 2009, respectively. Our fluid logistics segment utilized our fleet of owned or leased fluid transport trucks and related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks, water wells, salt water
disposal wells and facilities, and related equipment. These assets are used to provide, transport, store, and dispose of a variety of drilling and produced fluids used in, and generated by, oil and natural gas production. These services are required
in most workover and completion projects and are routinely used in daily operations of producing wells.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
believe that our two business segments are complementary and create synergies in terms of selling opportunities. Our multiple lines of service allow us to capitalize on our existing customer base to grow within existing markets, generate more
business from existing customers, and increase our operating profits. By offering our customers the ability to reduce the number of vendors they use, we believe we help improve our customers efficiency. This is demonstrated by the fact that
64% and 72% of our revenues for the three and nine months ended September 30, 2009, respectively, were from customers that utilized services of both of our business segments. Further, by having multiple service offerings that span the life
cycle of the well, we believe we have a competitive advantage over smaller competitors offering more limited services.



Factors Affecting Results of Operations

Oil and Natural Gas Prices

Demand for well servicing and fluid logistics
services is generally a function of the willingness of oil and natural gas companies to make operating and capital expenditures to explore for, develop and produce oil and natural gas, which in turn is affected by current and anticipated levels of
oil and natural gas prices. Exploration and production spending is generally categorized as either operating expenditures or capital expenditures. Activities by oil and natural gas companies designed to add oil and natural gas reserves are
classified as capital expenditures, and those associated with maintaining or accelerating production, such as workover and fluid



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logistics services, are categorized as operating expenditures. Operating expenditures are typically more stable than capital expenditures and are less sensitive to oil and natural gas price
volatility. In contrast, capital expenditures by oil and natural gas companies for drilling are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices.

Workover Rig Rates

Our well servicing segment revenues are dependent on the prevailing market rates for workover rigs. Market day rates for workover rigs increased from 2003 through the first half of 2008, as high oil and natural gas prices and declining
domestic production resulted in a substantial growth of drilling activity and demand for workover services that are used primarily to maintain or enhance production levels of existing producing wells. In the second half of 2008 and to date in 2009,
we have experienced declines in demand and significant pricing pressure that are a result of the general economic decline and, more specifically, the precipitous decline in oil prices. These pricing pressures have resulted in the granting of
significant price decreases to our customers during the three and nine months ended September 30, 2009.

Fluid
Logistics Rates

Our fluid logistics segment revenues are dependent on the prevailing market rates for fluid transport
trucks and the related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks and salt water disposal wells. Prior to the general economic decline that commenced in the latter half of 2008, higher oil and natural gas
prices resulted in growing demand for drilling and our services and, since the decline, lower oil and natural gas prices have resulted in reduced demand for drilling and our services. Required disposal of fluids produced from wells and the increased
number of wells in service through the first half of 2008 led to a higher demand for fluid logistics services. In the second half of 2008 and to date in 2009, fluid logistics rates have been under significant downward pressure resulting in
significant price decreases to our customers.

Operating Expenses

Prior to the general economic decline, a strong oil and natural gas environment resulted in a higher demand for operating personnel and
oilfield supplies and caused increases in the cost of those goods and services. In the second half of 2008 and to date in 2009, a weaker oil and natural gas environment has resulted in lower demand for operating personnel and oilfield supplies which
has allowed us to decrease our costs, thereby offsetting a portion of the price decreases granted to our customers. Additionally, fuel costs, which comprise a substantial portion of our operating expenses, increased substantially over the last few
years and in particular in the first half of 2008 before declining through the nine months of 2009. Future earnings and cash flows will be dependent on our ability to manage our overall cost structure and either maintain our existing prices or
obtain price increases from our customers.

Capital Expenditures and Debt Service Obligations

As a general matter, our capital expenditures to maintain our assets have been relatively limited. We have incurred indebtedness to invest in
new assets to grow our business. As a result, the indebtedness we incurred for our capital expenditures has significantly increased our debt service obligations. The majority of the net proceeds of the issuance of our $205 million 11% senior
secured notes, or the Second Priority Notes, was used to repay indebtedness incurred on capital expenditures. Most of our new assets have been acquired through bank borrowings, short-term equipment vendor financings, cash flows from operations and
other permitted financings. In the near term, we expect our capital expenditures will primarily relate to our Mexico operations and will be subject to the constraints of the covenants under the indenture governing our $205 million in principal
amount of 11% senior secured notes due 2015, issued February 12, 2008, or Second Priority Notes, and the indenture governing the $20 million in principal amount of First Lien Floating Rate Notes due 2014, or First Priority Notes, which were
issued on October 2, 2009. As of November 5, 2009, we had cash and cash equivalents on hand of $19.1 million.

Operating Income Margins

The well servicing segment typically has higher operating income margins along with
higher capital expenditures when compared with the fluid logistics segment, which has lower operating margins but also lower capital expenditure requirements. However, with the recent industry downturn, we have experienced less margin pressure on
our fluid logistics segment relative to the well servicing segment.



Results of Operations

The following discussion, as well as the
discussion found under Liquidity and Capital Resources, compares our consolidated financial information as of and for the three and nine months ended September 30, 2009, respectively, to the three and nine months ended
September 30, 2008, respectively.



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Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008

Revenues.For the three months ended September 30, 2009, revenues decreased by
$54.7 million, or 52.0%, to $50.5 million when compared to the same period in the prior year. During the third quarter of 2009 we experienced significant declines in utilization and customer pricing; both the result of the general economic decline.

Well Servicing Revenues from the well servicing segment decreased $30.5 million for the period, or 56.1% to
$23.9 million compared to the corresponding period in the prior year. The decrease was largely due to the decline in oil and gas prices which resulted in a reduced demand for our well services. Of the decrease, 71.0% was due to a reduction in hours
worked with the remaining 29.0% due to customer price reductions. A decreased in hours of 39.0% between the two periods resulted in a drop in utilization from 87.0% for the three months ended September 20, 2008 to 45.0% for the three months
ended September 30, 2009. Rates also decreased 26.0% for the three months ended September 30, 2009 as compared with the three months ended September 30, 2008. We had 170 well servicing rigs available as of September 30, 2009,
compared to 169 well servicing rigs at September 30, 2008, a 0.6% increase. Of the 170 rigs available as of September 30, 2009, ten were allocated to Mexico operations. Of the 160 in the U.S. at September 30, 2009, approximately 45.0%
were being utilized due to the general industry decline and a decline in oil and gas exploration and production activities. Of the ten allocated to Mexico operations, approximately 90.0% were being utilized.

Fluid Logistics  Revenues from the fluid logistics segment for the three months ended September 30, 2009 decreased $24.2
million, or 47.6%, to $26.6 million compared to the same period in the prior year, in line with the general industry decline in pricing and activity. Of this decrease, 72% was due to a reduction in hours worked with the remaining 28% due to customer
price reductions. A decrease in hours of 34% between the two periods resulted in a drop in utilization from 100% for the three months ended September 30, 2008 to 65% for the three months ended September 30, 2009. Rates also
decreased 20% for the three months ended September 30, 2009 as compared with the three months ended September 30, 2008. Our principal fluid logistics assets at September 30, 2009 and September 30, 2008 were as follows:



|                                |  |                     |  |       |  |            |  
|------------------------------- |  | ------------------- |  | ----- |  | ---------- | -
|                                |  | As of September 30, |  |       | 
|Asset                           |  | 2009                |  | 2008  |  | % Increase |  
|Vacuum trucks (includes leased) |  | 293                 |  | 287   |  | 2.1        | %
|High-pressure pump trucks       |  | 19                  |  | 18    |  | 5.6        | %
|Other heavy trucks              |  | 57                  |  | 57    |  | 0.0        | %
|Frac tanks (includes leased)    |  | 1,370               |  | 1,364 |  | 0.4        | %
|Salt water disposal wells       |  | 18                  |  | 14    |  | 28.6       | %

Operating Expenses. Our operating expenses decreased to $44.7 million for the
three months ended September 30, 2009, from $71.7 million for the three months ended September 30, 2008, a decrease of $27.0 million or 37.7%. Operating expenses as a percentage of revenues were 88.5% for the three months ended
September 30, 2009, compared to 68.2% for the three months ended September 30, 2008. This increase in operating expense as a percentage of our revenues is generally attributable to lower revenues due to lower utilization of our equipment,
and a significant reduction in the rates we are able to invoice our customers. The effect was partially offset by reductions in labor costs (rates and hours) and fuel price decreases, as discussed below.

Well Servicing Operating expenses from the well servicing segment decreased by $12.5 million, or 35.4%, to $22.9 million. Well
servicing operating expenses as a percentage of well servicing revenues were 95.9% for the three months ended September 30, 2009, compared to 65.2% for the three months ended September 30, 2008, an increase of 30.7%. This can be
attributed primarily to a decrease of approximately 40.0% in average billing rates per well service rig between the two quarters. In addition to declining rates from our customers, average well service rig utilization decreased to 45.0% for the
three months ended September 30, 2009 from 87.0% for the three months ended September 30, 2008. Rental equipment expense increased by $0.9 million. This was primarily due to an additional well service equipment lease entered in late
2008. Products and chemicals, and freight charges also increased by $2.8 million and $0.6 million respectively. Labor costs decreased by $10.1 million or 51.8% as a result of headcount and pay reductions throughout the company. The employee count at
September 30, 2009 was 842, as compared with 1,269 employees as of September 30, 2008. Supplies and parts, fuel and oil expense and out of town expense decreased by $2.9 million, $1.5 million and $0.9 million respectively. Other expenses
that decreased were insurance, auto and truck expenses, and safety expense by $0.3 million and contract services, bad debt expense and uniforms by $0.2 million. These decreases were the result of more aggressive cost management and lower equipment
utilization. The changes in expenses and revenues were in line with managements expectations and consistent with the rapidly changing industry.



Fluid Logistics Operating expenses from the fluid logistics segment decreased by $14.5 million, or 39.9%, to $21.8 million.
Fluid logistics operating expenses as a percentage of fluid logistics revenues were 81.9% for the three months ended September 30, 2009, compared to 71.4% for the three months ended September 30, 2008. This is primarily attributable
to a decrease in average utilization of 36.9%, and a 20.0% decline in average customer billing rates resulting from the general economic and industry decline. The decrease in fluid logistics operating expenses of $14.5 million was due in large part
to a decrease in fuel costs of $4.1



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million, or 50.2%, for the three months ended September 30, 2009, when compared to the same period in the prior year due to fuel price decreases of 36.8%. Fuel cost as a percentage of
revenues was 15.5% and 16.2% for the three months ended September 30, 2009 and 2008, respectively. Labor costs decreased by $4.0 million, or 36.9% to $6.8 million as result of headcount and pay reductions throughout the company. Labor costs as
a percentage of revenues were 25.5% and 21.2% for the three months ended September 30, 2009 and 2008, respectively. The employee count at September 30, 2009 was 668, as compared with 1,210 employees as of September 30, 2008. Product
and chemical costs decreased $2.4 million, or 62.7%, for the three months ended September 30, 2009, when compared to the same period in the prior year due to lower demand in drilling and well services driven by the decrease of oil and natural
gas prices. Product and chemical cost as a percentage of revenues was 5.4% and 7.5% for the three months ended September 30, 2009 and 2008, respectively. Contract services decreased $1.5 million, or 76.8% to $0.5 million. Contract labor cost as
percentage of fluid logistics revenues were 1.7% for the three months ended September 30, 2009, compared to 3.9% for the three months ended September 30, 2008 as a direct result of lower activity in the general industry. The remaining $2.3
million change is related to various expenses that were consistent with the lower activity of the business.

General and
Administrative Expenses. General and administrative expenses from the consolidated operations increased by approximately $0.1 million, or 3.0%, to $4.6 million. General and administrative expenses as a percentage of revenues were 9.2% and 4.3%
for the three months ended September 30, 2009 and 2008, respectively. Professional fees for legal, accounting and other services increased due to establishing operations in Mexico, and compliance with public reporting requirements.

Depreciation and Amortization. Depreciation and amortization expenses increased by $0.9 million, or 10.0%, to $10.0
million, due to new equipment acquired throughout 2008. Capital expenditures incurred for the three months ended September 30, 2009 were $3.9 million compared to $44.2 million for the three months ended September 30, 2008.

Interest and Other Expenses. Interest and other expenses were $6.4 million in the three months ended September 30, 2009,
compared to $6.5 million in the three months ended September 30, 2008. This decrease is due in part to the repurchase of bonds in the first and second quarter of 2009 and to the related gains on the repurchase.

Income Taxes.We recognized income tax expense of $5.1 million for the three months ended
September 30, 2008 due to FES Ltd. becoming subject to U.S. federal taxes on May 29, 2008 as a result of our Bermuda Reorganization. We recognized an income tax benefit of $5.6 million for the three months ended September 30, 2009 due
to the loss recognized during the quarter.

Nine Months Ended September 30, 2009 Compared to Nine
Months Ended September 30, 2008

Revenues.For the nine months ended September 30, 2009, revenues
decreased by $100.6 million, or 38.1%, to $163.7 million when compared to the same period in the prior year. During the fourth quarter 2008 and first nine months of 2009 we experienced declines in demand and significant pricing pressure that is a
result of the general economic decline.

Well Servicing Revenues from the well servicing segment
decreased $60.1 million for the period, or 42.6% to $80.9 million compared to the corresponding period in the prior year. The decrease was largely due to the decreased demand and the decline in oil prices which resulted in a reduced demand for our
well services. Of the decrease, 64.0% was due to a reduction in hours worked with the remaining 36.0% due to customer price reductions. A decreased in hours of 27.0% between the two periods resulted in a drop in utilization from 88.0% for the nine
months ended September 20, 2008 to 49.0% for the nine months ended September 30, 2009. Rates also decreased 21.0% for the nine months ended September 30, 2009 as compared with the nine months ended September 30, 2008. We had 170
well servicing rigs available as of September 30, 2009, compared to 169 well servicing rigs at September 30, 2008, a 0.6% increase. Of the 170 rigs available as of September 30, 2009, ten were allocated to Mexico operations. Of the
160 in the U.S. at September 30, 2009, only approximately 49.0% were being utilized due to the general industry decline. Of the ten allocated to Mexico operations, approximately 90.0% were being utilized.

Fluid Logistics  Revenues from the fluid logistics segment for the nine months ended September 30, 2009 decreased $40.5
million, or 33.0%, to $82.7 million compared to the same period in the prior year, as a result of the general industry decline in pricing and activity. Of this decrease, 65% was due to a reduction in hours worked with the remaining 35% due to
customer price reductions. A decrease in hours of 21% between the two periods resulted in a drop in utilization from 100% for the nine months ended September 30, 2008 to 67% for the nine months ended September 30, 2009. Rates
also decreased 15% for the nine months ended September 30, 2009 as compared with the nine months ended September 30, 2008. Our principal fluid logistics assets at September 30, 2009 and September 30, 2008 were as follows:



|                                       |  |                     |  |       |  |            |  
|-------------------------------------- |  | ------------------- |  | ----- |  | ---------- | -
|                                       |  | As of September 30, |  |       | 
|Asset                                  |  | 2009                |  | 2008  |  | % Increase |  
|Vacuum trucks                          |  | 293                 |  | 287   |  | 2.1        | %
|High-pressure pump trucks              |  | 19                  |  | 18    |  | 5.6        | %
|Other heavy trucks                     |  | 57                  |  | 57    |  | 0.0        | %
|Frac tanks (includes leased)           |  | 1,370               |  | 1,364 |  | 0.4        | %
|Salt water disposal wells  see Note 1 |  | 18                  |  | 14    |  | 28.6       | %



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Operating Expenses. Our operating expenses decreased to $138.0 million for the nine
months ended September 30, 2009, from $176.6 million for the nine months ended September 30, 2008, a decrease of $38.6 million or 21.9%. Operating expenses as a percentage of revenues were 84.3% for the nine months ended September 30,
2009, compared to 66.8% for the nine months ended September 30, 2008. This increase in operating expense as a percentage of our revenues is generally attributable to lower utilization of our equipment, and a significant reduction in the rates
we are able to invoice our customers, which has been partially offset by reductions in labor costs (rates and hours) and fuel price decreases, as discussed below.

Well Servicing Operating expenses from the well servicing segment decreased by $16.8 million, or 18.7%, to $73.0 million. Well servicing operating expenses as a percentage of well servicing
revenues were 90.2% for the nine months ended September 30, 2009, compared to 63.7% for the nine months ended September 30, 2008, an increase of 26.5%. This can be attributed primarily to a decrease of approximately 21.0% in average
billing rates per well service rig between the two periods. In addition to declining rates from our customers, average well service rig utilization decreased to 49.0% for the nine months ended September 30, 2009 from 88.0% for the nine months
ended September 30, 2008. Rent expenses increased by $3.7 million primarily due to an additional well service equipment leases. Product & chemicals, repairs & maintenance, freight charges, property taxes, bad debt
expense, professional fees, contract services and employee compensation also increased by $4.5 million, $1.6 million, $1.5 million, $1.0 million, $1.0 million, $0.7 million, $0.4 million and $0.3 million, respectively. Product and chemicals,
freight charges, and professional fees all increased due to operations in Mexico. Labor costs decreased by $17.2 million or 34.5% as a result of headcount and pay reductions throughout the company. The employee count at September 30, 2009 was
842, as compared with 1,269 employees as of September 30, 2008. Other expenses that decreased included supplies and parts, fuel and oil expense, out of town expense, insurance, and auto and truck expense decreased by $5.4 million,
$3.5 million, $2.5 million, $2.0 million, and $0.4 million respectively. The remaining $0.5 million decrease is comprised of various rig and yard expenses. These decreases were the result of more aggressive cost management and declining product
costs. The changes in expenses and decreases in revenues were in line with managements expectations and were consistent with the rapidly changing industry.

Fluid Logistics  Operating expenses from the fluid logistics segment decreased by $21.8 million, or 25.1%, to $65.0 million. Fluid logistics operating expenses as a percentage of fluid
logistics revenues were 78.5% for the nine months ended September 30, 2009, compared to 70.4% for the nine months ended September 30, 2008. This is primarily attributable to a decrease in average utilization of 33.0% and 15.0% decline
in average customer billing rates that are a result of the general economic decline. The decrease in fluid logistics operating expenses of $21.5 million was due in large part to a decrease in fuel costs of $9.1 million, or 45.6%, for the nine months
ended September 30, 2009, when compared to the same period in the prior year due to fuel price decreases of 47.7%. Fuel cost as a percentage of revenues was 13.1% and 16.2% for the nine months ended September 30, 2009 and 2008,
respectively. Labor costs decreased by $6.3 million, or 23.2% to $20.8 million as result of workforce and pay reductions throughout the company. Labor costs as a percentage of revenues were 25.2% and 22.0% for the nine months ended
September 30, 2009 and 2008, respectively. The employee count at September 30, 2009 was 688, as compared with 1,210 employees as of September 30, 2008. Product and chemical cost decreased $2.2 million, or 28.2%, for the nine months
ended September 30, 2009, when compared to the same period in the prior year due to the lower demand for drilling and well services driven by the decrease of oil and natural gas prices. Product and chemical cost as a percentage of revenues was
6.7. % and 6.3% for the nine months ended September 30, 2009 and 2008, respectively. Contract services cost decreased $2.0 million, or 54.2% to $1.7 million. Contract services cost as percentage of fluid logistics revenues were 2.1% for the
nine months ended September 30, 2009, compared to 3.0% for the nine months ended September 30, 2008 as a direct result of lower activity in the general industry. The remaining $1.9 million change is related to various expenses that were
consistent with the lower activity of the business.

General and Administrative Expenses. General and administrative
expenses from the consolidated operations increased by approximately $1.9 million, or 15.7%, to $14.3 million. General and administrative expense as a percentage of revenues were 8.7% and 4.7% for the nine months ended September 30, 2009 and
2008, respectively. Professional fees for accounting and legal services increased by $1.8 million primarily related to the costs associated costs associated with obtaining a consent from our bond holders, establishing operations in Mexico, and costs
of public reporting. The Company had an increase in stock based compensation expense of $1.1 million as the result of stock options issued in May 2008 upon the initial public offering of the companys common stock. Office expenses and investor
relations also increased approximately $0.3 million and $0.2 million. Wages, equipment rental, and property taxes all decreased by approximately $1.0 million, $0.3 million, and $0.2 million, respectively, due to the decrease in activity.

Depreciation and Amortization. Depreciation and amortization expenses increased by $5.9 million, or 25.1%, to $29.4 million, due
to new equipment acquired throughout 2008. Capital expenditures incurred for the nine months ended September 30, 2009 were $14.9 million compared to $138.5 million for the nine months ended September 30, 2008.



Interest and Other Expenses. Interest and other expenses
were $18.0 million in the nine months ended September 30, 2009, compared to $19.0 million in the nine months ended September 30, 2008. This decrease is due in part to the repurchase of bonds in the first quarter of 2009.



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Income Taxes.We recognized income tax expense of $60.2 million for the nine months
ended September 30, 2008 due to FES Ltd. becoming subject to U.S. federal taxes on May 29, 2008 as a result of our Bermuda Reorganization. We recognized an income tax benefit of $12.9 million for the nine months ended September 30,
2009 with an effective rate of 35.7% due to the loss recognized during the period.

Liquidity and Capital Resources

Overview

As discussed in Note 7 of our Notes to Condensed Consolidated Financial Statements, we repaid and terminated our revolving credit facility with Citibank, N.A., or the Credit Facility, using the proceeds
from the issuance of the First Priority Notes. Notwithstanding the termination of the Credit Facility, the indenture governing our Second Priority Notes, or the Second Priority Indenture, and the newly executed indenture governing our First Priority
Notes, or the First Priority Indenture, and the debt outstanding thereunder impose significant restrictions on us and increase our vulnerability to adverse economic and industry conditions that could limit our ability to obtain additional or
replacement financing. While the principal indebtedness of the First Priority Notes is not scheduled for repayment until August 2014 and the Second Priority Notes not until February 2015, our inability to satisfy certain obligations under these
agreements would constitute an event of default. A event of default could result in all or a portion of our outstanding debt becoming immediately due and payable. If this should occur, we might not be able to obtain waivers or secure alternative
financing to satisfy all of our obligations simultaneously. Given current market conditions, our ability to access the capital markets or to effect any asset sales might be restricted at a time when we would like or need to raise capital. In
addition, the current economic conditions could also impact our customers and vendors and may cause them to fail to meet their obligations to us with little or no warning. These events could have a material adverse effect on our business, financial
position, results of operations and cash flows and our ability to satisfy the obligations under our debt agreements.

Within
certain constraints, we can conserve capital by reducing or delaying capital expenditures, deferring non-regulatory maintenance expenditures and further reducing operating and administrative costs. While postponing or eliminating capital
expenditures would delay or reduce future cash flows, we believe these actions can provide us the flexibility to match our capital commitments to our available capital resources. Although we currently believe our cash, cash equivalents, and
projected cash flows from operations will be sufficient to meet our cash requirements for the next year and the foreseeable future, the factors described above create uncertainty.

We have historically funded our operations, including capital expenditures, with bank borrowings, vendor financings, cash flow from
operations, the issuance of our Second Priority Notes, our First Priority Notes and the proceeds from our Initial Equity Offering and our October 2008 U.S. private placement.

As of September 30, 2009, prior to the issuance of the First Priority Notes, we had $25.4 million in cash and cash equivalents,
$206.8 million in long-term debt outstanding, $8.4 million in short-term debt outstanding, and $10.1 million of short-term equipment vendor financings for well servicing rigs and other equipment included in accounts payable. In the nine
months ended September 30, 2009, we incurred $14.9 million in capital expenditures, which included equipment related to rigs (primarily for our Mexico operations), saltwater disposal wells and pickup trucks. We financed these purchases
with cash flow from operations and certain short-term vendor financings.

Cash Flows

Our cash flows depend, to a large degree, on the level of spending by oil and gas companies development and production activities.
Sustained increases or decreases in the price of natural gas or oil will generally have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary
capital expenditures, purchases and sales of investments, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $20.6 million for the nine months ended September 30, 2009, compared to net cash provided by operating activities of $37.7 million for the nine
months ended September 30, 2008, a decrease of $17.1 million. The most significant reason for the decrease in net cash flow a decrease in pre-tax earnings of $68.9 million between the two periods. This decrease was offset by additional cash
flow generated from a decrease in accounts receivable of $28.0 million at September 30, 2009 as compared to an increase of $36.5 million in September 30, 2008. The balance of the change was generated through changes in various working
capital accounts.



Cash Flows Used in Investing
Activities

Net cash used in investing activities for the nine months ended September 30, 2009 amounted to $24.3
million compared to $140.1 million for the nine months ended September 30, 2008. The significant capital expenditures in the first nine months of 2008 were reflective of the expansion of business during 2008. Capital expenditures for the nine
months ended September 30, 2009 were primarily for Mexico operations and payment for capital expenditures incurred in prior periods that were included in accounts payable at December 31, 2008.



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Cash Flows from Financing Activities

Cash flows provided by financing activities for the nine months ended September 30, 2009 amounted to $4.0 million compared to $107.1
million for the nine months ended September 30, 2008. During the nine months ended September 30, 2009, $12.0 million was drawn under our Credit Facility and is reflected in Forbes cash of $25.4 million at September 30, 2009. The
nine months ended September 30, 2008 reflect the original issuance of the Second Priority Notes, repayments of other debt with the proceeds, and related debt issuance costs.

Second Priority Notes

On February 12, 2008, we issued an aggregate of $205.0 million of 11.0% Second Priority Notes in the Debt Offering. The notes are our senior secured obligations. The notes are and will be
guaranteed on a senior secured basis by each of our existing and future domestic restricted subsidiaries. The Second Priority Notes and the guarantees are secured by second priority liens on substantially all of our assets, subject to certain
exceptions and permitted liens. The Second Priority Notes are subject to redemption and to requirements that we offer to purchase the Second Priority Notes upon a change of control, following certain asset sales, and if we have excess cash flow for
any fiscal year. The Second Priority Indenture governing the Second Priority Notes limits our and our restricted subsidiaries ability to, among other things, transfer or sell assets; pay dividends, redeem subordinated indebtedness, make
investments or make other restricted payments; incur or guarantee additional indebtedness or issue disqualified capital stock; make capital expenditures that exceed certain amounts; create, incur or suffer to exist liens; incur dividend or other
payment restrictions affecting certain subsidiaries; consummate a merger, consolidation or sale of all or substantially all of our assets; enter into transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; engage in a
business other than a business that is the same or similar to our current business and reasonably related businesses; and take or omit to take any actions that would adversely affect or impair in any material respect the liens in respect of the
collateral securing the Second Priority Notes.

First Priority Notes

On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs & Co. $20 million in aggregate principal amount of First
Priority Notes in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. After offering expenses, the Forbes Group realized net proceeds of approximately $20.0 million which was used to
repay and terminate its Credit Facility with Citibank, N.A. The First Priority Notes mature on August 1, 2014, and require semi-annual interest payments on February 1 and August 1 of each year until maturity at a rate per annum, reset
semi-annually, equal to six month LIBOR plus 800 basis points. No principal payments are due until maturity. The First Priority are senior obligations and rank equally in right of payment with other existing and future senior indebtedness, including
the Second Priority Notes, and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.

The First Priority Notes are guaranteed by FES Ltd, as well as the Guarantor Subs. Each of the Guarantor Subs guarantee the securities on a full and unconditional and joint and several basis. The two
Non-Guarantor Subs have not guaranteed the First Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of the Non-Guarantor Subs to secure the First Priority Notes. The Forbes Group may, at its
option, redeem all or part of the First Priority Notes from time to time at specified redemption prices and subject to certain conditions required by the First Priority Indenture governing the First Priority Notes. The Forbes Group is required to
make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The
Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.

The First Priority Indenture contains certain covenants similar to those in the Second Priority Indenture, including provisions that limit
or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt, to create, incur or permit to exist certain liens on assets, to make payments on certain subordinated indebtedness, to pay dividends or
certain other payments to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business, to engage in transactions with affiliates or to make capital expenditures in excess of certain amounts
based on the year in which such expenditures are made. The First Priority Indenture also provides for certain limitations and restrictions on the Forbes Groups ability to move collateral outside the United States or dispose of assets. These
covenants are subject to a number of important limitations and exceptions. Further, each of the First Priority Indenture and Second Priority Indenture provides for events of default, which, if any of them occur, would, in certain circumstances,
permit or require the principal, premium, if any, and interest on all the then outstanding First Priority Notes or Second Priority Notes, respectively, to be due and payable immediately. Additionally, in certain circumstances an event of default
under the First Priority Indenture would cause an event of default under the cross-default provision of the Second Priority Indenture and vice versa. The rights of the trustee and collateral agent under the First Priority Indenture vis-à-vis
the trustee and collateral agent under the Second Priority Indenture are governed by an intercreditor agreement among the Forbes Group, Wilmington Trust, the trustee and collateral agent under the First Priority Indenture, and Wells Fargo Bank,
National Association, the trustee and collateral agent under the Second Priority Indenture.



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There are no significant restrictions on FES Ltds ability or the ability of any
guarantor to obtain funds from its subsidiaries by such means as a dividend or loan. See Note 15 for condensed consolidating information required by Rule 3-10 of Regulation S-X.

Contractual Obligations and Financing

There have been no material changes from the information presented in our Annual Report on Form 10-K for the year ended December 31, 2008.

Seasonality

Our operations are impacted by seasonal factors. Historically, our business has been negatively impacted during the winter months due to inclement weather, fewer daylight hours, and holidays. Our well servicing rigs are mobile, and we
operate a significant number of oilfield vehicles. During periods of heavy snow, ice or rain, we may not be able to move our equipment between locations, thereby reducing our ability to generate rig or truck hours. In addition, the majority of our
well servicing rigs work only during daylight hours. In the winter months when daylight time becomes shorter, this reduces the amount of time that the well servicing rigs can work and, therefore, has a negative impact on total hours worked. Finally,
during the fourth quarter, we historically have experienced significant slowdowns during the Thanksgiving and Christmas holiday seasons.

Critical Accounting Policies and Estimates

There have been no
changes in our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K for the year ended December 31, 2008.

In May 2009, the FASB issued Accounting Standards Codification Topic 855-10 Subsequent Events (ASC 855-10), which became effective for us on April, 2009. This standard
establishes principles and requirements for disclosure of subsequent events. It establishes the period after the balance sheet date during which events or transactions are to be evaluated for potential disclosure. It also establishes the
circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date and requires the Company to disclose the date through which subsequent events have been reviewed. The adoption of this standard did not
have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued Accounting Standards Codification Topic 105, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principle, (ASC 105), which became effective for us on July 1, 2009. ASC 105 establishes the FASB Accounting Standards Codification (ASC) as the source of authoritative
accounting principles recognized by the FASB to be applied by non governmental entities in the preparation of financial statements in conformity with GAAP, ASC 105 is not expected to change GAAP and will not have a material impact on our
consolidated financial statements, however, references to GAAP within these financial statements have been updated to the ASC.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

In addition to the risks inherent in our operations, we are exposed to financial, market and economic risks. Changes in interest rates may result in changes in the fair market value of our financial
instruments, interest income and interest expense. Our financial instruments that are exposed to interest rate risk are long-term borrowings. The following discussion provides information regarding our exposure to the risks of changing interest
rates.

Our primary debt obligations are the outstanding Second Priority Notes and, as of October 2, the First Priority
Notes. Changes in interest rates do not affect interest expense incurred on our Second Priority Notes as such notes bear interest at fixed rates. However, changes in interest rates would affect their fair values. In general, the fair market value of
debt with a fixed interest rate will increase as interest rates fall. Conversely, the fair market value of debt will decrease as interest rates rise. A hypothetical change in interest rates of 10% relative to interest rates as of September 30,
2009 would have no impact on our interest expense for the Second Priority Notes.

The First Priority Notes have a variable
interest rate and, therefore, are subject to interest rate risk. A 100 basis point increase in interest rates on our variable rate debt would result in approximately $200,000 in additional annual interest expense.

We have not entered into any derivative financial instrument transactions to manage or reduce market risk or for speculative purposes.



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|Item 4T. | Controls and Procedures
|-------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief
executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2009. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30,
2009, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective. See Material Weaknesses below.

Change in Internal Control over Financial Reporting

Other than the remediation measure described below under Remediation no change in our internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.

Material Weaknesses

In connection with the preparation of the Forbes Groups consolidated financial statements for the year ended December 31, 2008 and the period ended September 30, 2009, we identified
control deficiencies that constitute material weaknesses in the design and operation of our internal control over financial reporting. The following material weaknesses were present at December 31, 2008 and at September 30, 2009.



| |  |  | We did not maintain an appropriate accounting and financial reporting organizational structure to support the activities of the Forbes Group.
Specifically, we did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training to ensure the proper selection, application and implementation of GAAP.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We did not maintain effective controls over the preparation and review of the consolidated financial statements and disclosures. Specifically,
effective controls were not designed and in place around the oversight and review of the consolidated financial statements and disclosures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We did not design or maintain effective controls over purchase accounting. Specifically, we did not design and maintain effective controls over the
accuracy and completeness of the purchase price allocation associated with the January 1, 2008 Delaware Reorganization. This material weakness resulted in the requirement to restate the Companys unaudited condensed consolidated financial
statements issued and filed for the quarters ended June 30, 2008 and September 30, 2008 (as well as the issued but unfiled consolidated financial statements for the quarter ended March 31, 2008).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the year ended December 31, 2008, we did not design and maintain effective controls over the review of the accuracy and completeness of the
income tax provision. This material weakness resulted in the requirement to restate the Companys unaudited condensed consolidated financial statements issued and filed for the quarters ended June 30, 2008 and September 30, 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, we identified the following material weakness during the quarter ended September 30,
2009:



| |  |  | We did not design or maintain effective controls over the recording of revenue and expenses in our Mexico operations. Specifically, effective controls
were not designed and in place to ensure that revenues and expenses were recorded at the correct amounts in the appropriate period. This resulted in errors during the quarters ended March 31, 2009 and June 30, 2009, which were corrected
during the quarter ended September 30, 2009.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These control deficiencies could result in a future
material misstatement to substantially all the accounts and disclosures that would result in a material misstatement to the annual or interim combined financial statements that would not be prevented or detected. Accordingly, we have determined that
each of the above control deficiencies represents a material weakness.

Remediation

As mentioned above, we have identified certain material weaknesses that exist as of September 30, 2009 in our internal control over
external financial reporting and complex, non-routine accounting issues.



34



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##### Table of Contents

We have implemented, or are in the process of implementing and continue to implement,
remedial measures to address the above deficiencies on a going-forward basis. Specifically, in mid-2007 we hired a chief financial officer. In early 2008, we hired a controller and accounting staff, and in mid-2008, established our audit committee.
In 2009, in response to the requirement to restate quarterly financial statements for the first, second, and third quarters of 2008, we engaged a professional services firm to assist our accounting staff with external financial reporting and
complex, non-routine accounting issues. In response to the Mexico operations revenue and expense recognition errors, a controller with international accounting experience and an appropriate accounting staff have been hired. Additionally, a
third party consultant has been hired to document systems and controls at our Mexico operations.

Beginning with the year
ending December 31, 2010, pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting, and beginning with the year-ending
December 31, 2010, our auditors will be required to audit and report on our assessment of and the effectiveness of our internal control over financial reporting. We have a substantial effort ahead of us to complete the documentation and testing
of our internal control over financial reporting and remediate any additional material weaknesses identified during that activity. We may not be able to complete the required management assessment by our reporting deadline. An inability to complete
this assessment would result in receiving something other than an unqualified report from our auditors with respect to our assessment of our internal control over financial reporting. In addition, if material weaknesses are not remediated, we would
not be able to conclude that our internal control over financial reporting was effective, which would result in the inability of our external auditors to deliver an unqualified report on the effectiveness of our internal control over financial
reporting.

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

There
are no pending material legal proceedings, and the Forbes Group is not aware of any material threatened legal proceedings, to which the Forbes Group is a party or to which its property is subject, other than in the ordinary course of business.



|Item 1A. | Risk Factors
|-------- | ------------

There were
no material changes from the risk factors previously disclosed in the registrants Annual Report on Form 10-K for the year ended December 31, 2008 in response to Item 1A. Risk Factors to Part II of Form 10-Q except as noted
below.

The Company has foreign operations that may pose additional risks

The Company has operations in Mexico. The results of such operations are dependent upon numerous factors, some of which are specifically
related to doing business in Mexico, including the stability of the Mexican economy, the political climate in Mexico and Mexicos relations with the United States, currency exchange rate fluctuations, risk of governmental expropriation,
prevailing worker wages, the ability to identify, hire, train and retain qualified personnel and operating management in Mexico, current and changing Mexican regulatory environments, difficulty in enforcing agreements due to differences in the
Mexican legal and regulatory regimes compared to those of the U.S, communication and translation errors due to language barriers, and the ability to maintain the legal authority of the Company to own and operate its business in Mexico.

Our operations in Mexico are subject to specific risks, including risks associated with contract bidding and the
performance of extra work outside the original scope of work of our contract.

Our operations in Mexico are performed
for Petróleos Mexicanos, or PEMEX, pursuant to a two year contract. This contract is subject to competitive bid for renewal. The failure by us to renew this contract could have a material adverse effect on our financial condition, results of
operations and cash flows. Additionally, at the request of PEMEX, we are performing services outside of the scope of our current contract. We are finalizing a new contract with PEMEX that will cover these additional
operations. Failure to satisfactorily complete and execute this additional contract could adversely impact our financial condition, results of operations and cash flows.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to Vote of Security Holders
|------- | -------------------------------------------------

None.



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##### Table of Contents

|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits**
|------- | ----------



|       |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description of Exhibits
|       |  |                        
|2.1    |  |                        |  | Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                           
|       |  |                        
|2.2    |  |                        |  | Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to
Exhibit 2.2 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                        
|       |  |                        
|3.1    |  |                        |  | Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                          
|       |  |                        
|3.2    |  |                        |  | Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                      
|       |  |                        
|4.1    |  |                        |  | Indenture, dated February 12, 2008 among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                            
|       |  |                        
|4.2    |  |                        |  | Supplemental Indenture (First Supplemental Indenture), dated May 29, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other
Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).           
|       |  |                        
|4.3    |  |                        |  | Supplemental Indenture (Second Supplemental Indenture, dated effective October 6, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc.,
the other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).
|       |  |                        
|4.4    |  |                        |  | Third Supplemental Indenture, dated February 6, 2009 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other Guarantors (as defined
in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated February 6, 2009).                                                
|       |  |                        
|4.5    |  |                        |  | Indenture dated October 2, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing Testers, LLC,
Forbes Energy International, LLC, Forbes Energy Services Ltd. and Wilmington Trust FSB, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 10, 2009).                                                 
|       |  |                        
|4.6    |  |                        |  | Notation of Guarantee from Forbes Energy Services Ltd. (incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                                                                                                                                                                                                                                         
|       |  |                        
|4.7    |  |                        |  | Notation of Guarantee from Forbes Energy International, LLC (incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 10-K for the year ended December
31, 2008).                                                                                                                                                                                                                                                    
|       |  |                        
|4.8    |  |                        |  | Guaranty dated April 10, 2008, among Forbes Energy Services LLC and Forbes Energy Capital, Inc., including Guaranty Supplement, dated effective May 29, 2008, executed January 5,
2009, among Forbes Energy Services Ltd. and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed January 8, 2009).                                                                                 
|       |  |                        
|4.9    |  |                        |  | Registration Rights Agreement, dated as of February 7, 2008, among Jefferies & Company, Inc., Forbes Energy Services Inc., Forbes Energy Capital Inc. and the guarantors
party thereto (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                         
|       |  |                        
|4.10   |  |                        |  | Specimen 144A Global 11% Senior Secured Exchange Note due 2015 (incorporated by reference to Exhibit 4.5 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                     
|       |  |                        
|4.11   |  |                        |  | Rights Agreement effective May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the Certificate
of Designations of Series A Junior Participating Preferred                                                                                                                                                                                                          



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|       |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|------ |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description of Exhibits
|       |  |                        
|       |  |                         |  | Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to
the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                          
|       |  |                        
|10.1   |  |                        |  | Credit Agreement dated April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC, as
guarantor, and Citibank, N.A., as lender, governing the Credit Facility (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                              
|       |  |                        
|10.2   |  |                        |  | Third Amendment to Credit Agreement dated May 15, 2009 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC,
as guarantor, and Citibank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 15, 2009).                                                            
|       |  |                        
|10.3   |  |                        |  | Intercreditor Agreement dated April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC, Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC and
Forbes Energy Capital Inc., as issuers, Citibank, N.A. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).
|       |  |                        
|10.4   |  |                        |  | Forbes Energy Services Ltd. Incentive Compensation Plan effective May 19, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                               
|       |  |                        
|10.5   |  |                        |  | Employment Agreement effective May 1, 2008 by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.2 to the Companys
Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                       
|       |  |                        
|10.6   |  |                        |  | Employment Agreement effective May 1, 2008 by and between Charles C. Forbes and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.3 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                   
|       |  |                        
|10.7   |  |                        |  | Employment Agreement effective May 1, 2008 by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.4 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                    
|       |  |                        
|10.8   |  |                        |  | Form of Indemnification Agreement for directors, officers and key employees (incorporated by reference to Exhibit 10.5 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                  
|       |  |                        
|10.9   |  |                        |  | Form of Executive Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                       
|       |  |                        
|10.10  |  |                        |  | Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                        
|       |  |                        
|10.11  |  |                        |  | Commercial Equipment Lease Agreement, dated October 15, 2008 among Forbes Energy Services LLC and Alice Environmental Services, LP. (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).                                                                                                                               
|       |  |                        
|10.12  |  |                        |  | Notes Purchase Agreement dated September 25, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing
Testers, LLC, Forbes Energy International, LLC, Forbes Energy Services Ltd. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 28, 2009).   
|       |  |                        
|31.1*  |  |                        |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                         



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|       |  |                         |  |                                                                                                                                                           
|------ |  | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description of Exhibits
|       |  |                        
|31.2*  |  |                        |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                            
|       |  |                        
|32.1*  |  |                        |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|       |  |                        
|32.2*  |  |                        |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



|* | Filed herewith.
|- | ---------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|                  |  |                             |  |                                                
|----------------- |  | --------------------------- |  | -----------------------------------------------
|                  |  | FORBES ENERGY SERVICES Ltd.
|                  |  |                            
|November 13, 2009 |  | By:                         |  | /S/    JOHN E.
CRISP                           
|                  |  |                             |  | John E. Crisp                                  
|                  |  |                             |  | Chairman, Chief Executive Officer and President
|                  |  |                             |  | (Principal Executive Officer)                  
|                  |  |                            
|November 13, 2009 |  | By:                         |  | /S/    L. MELVIN
COOPER                        
|                  |  |                             |  | L. Melvin Cooper                               
|                  |  |                             |  | Senior Vice President,                         
|                  |  |                             |  | Chief Financial Officer and Assistant Secretary
|                  |  |                             |  | (Principal Financial and Accounting Officer)   



39



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EXHIBIT INDEX**



|       |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description of Exhibits
|       |  |                        
|2.1    |  |                        |  | Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC
and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                               
|       |  |                        
|2.2    |  |                        |  | Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to
Exhibit 2.2 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                            
|       |  |                        
|3.1    |  |                        |  | Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                              
|       |  |                        
|3.2    |  |                        |  | Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                          
|       |  |                        
|4.1    |  |                        |  | Indenture, dated February 12, 2008 among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                                                
|       |  |                        
|4.2    |  |                        |  | Supplemental Indenture (First Supplemental Indenture), dated May 29, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other
Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).                                               
|       |  |                        
|4.3    |  |                        |  | Supplemental Indenture (Second Supplemental Indenture, dated effective October 6, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc.,
the other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                    
|       |  |                        
|4.4    |  |                        |  | Third Supplemental Indenture, dated February 6, 2009 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other Guarantors (as defined
in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated February 6, 2009).                                                                                    
|       |  |                        
|4.5    |  |                        |  | Indenture dated October 2, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing Testers, LLC, Forbes
Energy International, LLC, Forbes Energy Services Ltd. and Wilmington Trust FSB, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 10, 2009).                                                                                     
|       |  |                        
|4.6    |  |                        |  | Notation of Guarantee from Forbes Energy Services Ltd. (incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                                                                                                                                                                                                                                                                             
|       |  |                        
|4.7    |  |                        |  | Notation of Guarantee from Forbes Energy International, LLC (incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 10-K for the year ended December
31, 2008).                                                                                                                                                                                                                                                                                        
|       |  |                        
|4.8    |  |                        |  | Guaranty dated April 10, 2008, among Forbes Energy Services LLC and Forbes Energy Capital, Inc. including Guaranty Supplement, dated effective May 29, 2008, executed January 5,
2009, among Forbes Energy Services Ltd. and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed January 8, 2009).                                                                                                                      
|       |  |                        
|4.9    |  |                        |  | Registration Rights Agreement, dated as of February 7, 2008, among Jefferies & Company, Inc., Forbes Energy Services Inc., Forbes Energy Capital Inc. and the guarantors
party thereto (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                                                             
|       |  |                        
|4.10   |  |                        |  | Specimen 144A Global 11% Senior Secured Exchange Note due 2015 (incorporated by reference to Exhibit 4.5 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                         
|       |  |                        
|4.11   |  |                        |  | Rights Agreement effective May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the Certificate
of Designations of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).



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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|----- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |  
|10.1  |  |  |  | Credit Agreement dated April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC, as
guarantor, and Citibank, N.A., as lender, governing the Credit Facility (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                              
|      |  |  
|10.2  |  |  |  | Third Amendment to Credit Agreement dated May 15, 2009 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services
LLC, as guarantor, and Citibank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 15, 2009).                                                            
|      |  |  
|10.3  |  |  |  | Intercreditor Agreement dated April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC, Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC and
Forbes Energy Capital Inc., as issuers, Citibank, N.A. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).
|      |  |  
|10.4  |  |  |  | Forbes Energy Services Ltd. Incentive Compensation Plan effective May 19, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                               
|      |  |  
|10.5  |  |  |  | Employment Agreement effective May 1, 2008 by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.2 to the Companys
Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                       
|      |  |  
|10.6  |  |  |  | Employment Agreement effective May 1, 2008 by and between Charles C. Forbes and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.3 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                   
|      |  |  
|10.7  |  |  |  | Employment Agreement effective May 1, 2008 by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.4 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                    
|      |  |  
|10.8  |  |  |  | Form of Indemnification Agreement for directors, officers and key employees (incorporated by reference to Exhibit 10.5 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                  
|      |  |  
|10.9  |  |  |  | Form of Executive Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                       
|      |  |  
|10.10 |  |  |  | Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                        
|      |  |  
|10.11 |  |  |  | Commercial Equipment Lease Agreement, dated October 15, 2008 among Forbes Energy Services LLC and Alice Environmental Services, LP. (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).                                                                                                                               
|      |  |  
|10.12 |  |  |  | Notes Purchase Agreement dated September 25, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing
Testers, LLC, Forbes Energy International, LLC, Forbes Energy Services Ltd. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 28, 2009).   
|      |  |  
|31.1* |  |  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                         
|      |  |  
|31.2* |  |  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                         
|      |  |  
|32.1* |  |  |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                             
|      |  |  
|32.2* |  |  |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                             



|* | Filed herewith.
|- | ---------------



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